"Wonderful! Not only did our salespeople do a good job in meeting the sales budget this year, but our production people did a good job in controlling costs as well," said Kim Clark, president of Martell Company, "Our 18,300 overall manufacturing cost variance is only 1.2% of the 1,536,000 standard cost of products made during the year. That's well within the 3% parameter set by management for acceptable variances. It looks like everyone will be in line for a bonus this year" "
The company produces and sells a single product. The standard cost card for the product follows:

The following additional information is available for the year just completed:
a. The company manufactured 30,000 units of product during the year.
b. A total of 64,000 feet of material was purchased during the year at a cost of 8.55 per foot. All of this material was used to manufacture the 30,000 units. There were no beginning or ending inventories for the year.

Required:
(d)Total the variances you have computed, and compare the net amount with the 18,300 mentioned by the president. Do you agree that bonuses should be given to everyone for good cost control during the year? Explain.

Commodity in addition to what's anticipated or rigorously due similar as. a plutocrat or an original given in addition to a hand's usual compensation be a decoration( as of stock) given by a pot to a purchaser of its securities, to a protagonist, or to a hand.

Computation of Material Price Variance and Material Quantity Variance :-

Material Price Variance =(Standard Price - Actual Price) Actual Quantity purchased

= ($8.45 per foot - $8.55 per foot)*64,000 feet = ($6,400) Unfavourable

Material Quantity Variance = (Standard Quantity for actual production - Actual Quantity)Standard Price

=[(2 feet*30,000 units) - 64,000 feet]*$8.45 = ($33,800) Unfavourable

Computation of Labour Rate and Labour Efficiency variance :-

Labour Rate Variance = (Standard rate - Actual rate)Actual Labour Hours

= ($16-$15.8)*43,500 hours $8,700 Favourable

Labour Efficiency Variance = (Standard Hours for actual production - Actual Hours)Standard Rate

[(1.4 hours*30,000 units) - 43,500 hours]*$16 = ($24,000) Unfavourable

a) Computation of Variable overhead rate and efficiency variance for the year :-

Variable Overhead Rate Variance (Standard rate - Actual rate)Actual Hours

= [$2.5 - ($108,000/43,500 hours)]*43,500 hours = $750 Favourable

Variable Overhead Efficiency Variance = (Standard Hours - Actual Hours) Standard Rate

= [(30,000 units*1.4 hours) - 43,500 hours]*$2.5 = ($3,750) Unfavourable

b) Computation of Fixed Overhead Budget and Volume Variance of year :-

Fixed Overhead Budget Variance = Budgeted Fixed Overhead - Actual Fixed Overhead

= $210,000 - $211,800 = ($1,800) Unfavourable

Fixed Overhead Volume Variance = Absorbed Fixed Overhead - Budgeted Fixed Overhead

= (43,500 hours*$6 per hour) - 210,000 (equal)= $51,000 Favourable

Hence, bonuses should be given to everyone for good cost control during the year.

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