Spencer Company Manufactures a Single Product That Has a Standard

Essay

Spencer Company manufactures a single product that has a standard materials cost of $20 (4 units of materials at $5 per unit), standard direct labour cost of $9 (1 hour per unit), and standard variable overhead cost of $4 (based on direct labour hours). Fixed overhead is budgeted at $17,000 per month. The following data pertain to operations for May:
$$\begin{array} { l l } \text { Materials purchased: } & 8,000 \text { units costing } \$ 39,400 \\\text { Materials used in production of 1,500 units of finished } & 6,200 \text { units of materials } \\\text { product: } & \\\text { Direct labour used: } & 1,500 \text { hours costing } \$ 15,000 \\\text { Variable overhead costs incurred: } & \$ 5,960 \\\text { Fixed overhead costs incurred: } & \$ 17,500\end{array}$$
a.Prepare a performance report for Spencer for June using the following headings:
1. Actual Production Costs
2. Flexible Budget Costs
3. Flexible Budget Variances
b.Compute the following variances (show calculations):
1. Materials usage variance
2. Labour rate variance
3. Labour efficiency variance
4. Variable overhead spending variance
5. Variable overhead efficiency variance
6. Fixed overhead budget variance
c.Give one possible explanation for each of the six variances computed in part (b).