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Question: MicroDisk is the market leader in the

MicroDisk is the market leader in the Secure Digital (SD) card industry and sells memory cards for use in portable devices such as mobile phones, tablets, and digital cameras. Its most popular card is the Mini SD, which it sells through outlets such as Target and Walmart for an average selling price of $8. MicroDisk has a standard monthly production level of 420,000 Mini SDs in its Taiwan facility. The standard input quantities and prices for direct-cost inputs are as follows:
MicroDisk is the market leader in the Secure Digital (SD) card industry and sells memory cards for use in portable devices such as mobile phones, tablets, and digital cameras. Its most popular card is the Mini SD, which it sells through outlets such as Target and Walmart for an average selling price of $8. MicroDisk has a standard monthly production level of 420,000 Mini SDs in its Taiwan facility. The standard input quantities and prices for direct-cost inputs are as follows:

Phoebe King, the CEO, is disappointed with the results for June 2017, especially in comparison to her expectations based on the standard cost data.

King observes that despite the significant increase in the output of Mini SDs in June, the product’s contribution to the company’s profitability has been lower than expected. She gathers the following information to help analyze the situation:

Calculate the following variances. Comment on the variances and provide potential reasons why they might have arisen, with particular attention to the variances that may be related to one another: 

Required:
1. Selling-price variance 
2. Direct materials price variance, for each category of materials 
3. Direct materials efficiency variance, for each category of materials 
4. Direct manufacturing labor price variance, for setup and fabrication 
5. Direct manufacturing labor efficiency variance, for setup and fabrication

Phoebe King, the CEO, is disappointed with the results for June 2017, especially in comparison to her expectations based on the standard cost data.
MicroDisk is the market leader in the Secure Digital (SD) card industry and sells memory cards for use in portable devices such as mobile phones, tablets, and digital cameras. Its most popular card is the Mini SD, which it sells through outlets such as Target and Walmart for an average selling price of $8. MicroDisk has a standard monthly production level of 420,000 Mini SDs in its Taiwan facility. The standard input quantities and prices for direct-cost inputs are as follows:

Phoebe King, the CEO, is disappointed with the results for June 2017, especially in comparison to her expectations based on the standard cost data.

King observes that despite the significant increase in the output of Mini SDs in June, the product’s contribution to the company’s profitability has been lower than expected. She gathers the following information to help analyze the situation:

Calculate the following variances. Comment on the variances and provide potential reasons why they might have arisen, with particular attention to the variances that may be related to one another: 

Required:
1. Selling-price variance 
2. Direct materials price variance, for each category of materials 
3. Direct materials efficiency variance, for each category of materials 
4. Direct manufacturing labor price variance, for setup and fabrication 
5. Direct manufacturing labor efficiency variance, for setup and fabrication

King observes that despite the significant increase in the output of Mini SDs in June, the product’s contribution to the company’s profitability has been lower than expected. She gathers the following information to help analyze the situation:
MicroDisk is the market leader in the Secure Digital (SD) card industry and sells memory cards for use in portable devices such as mobile phones, tablets, and digital cameras. Its most popular card is the Mini SD, which it sells through outlets such as Target and Walmart for an average selling price of $8. MicroDisk has a standard monthly production level of 420,000 Mini SDs in its Taiwan facility. The standard input quantities and prices for direct-cost inputs are as follows:

Phoebe King, the CEO, is disappointed with the results for June 2017, especially in comparison to her expectations based on the standard cost data.

King observes that despite the significant increase in the output of Mini SDs in June, the product’s contribution to the company’s profitability has been lower than expected. She gathers the following information to help analyze the situation:

Calculate the following variances. Comment on the variances and provide potential reasons why they might have arisen, with particular attention to the variances that may be related to one another: 

Required:
1. Selling-price variance 
2. Direct materials price variance, for each category of materials 
3. Direct materials efficiency variance, for each category of materials 
4. Direct manufacturing labor price variance, for setup and fabrication 
5. Direct manufacturing labor efficiency variance, for setup and fabrication

Calculate the following variances. Comment on the variances and provide potential reasons why they might have arisen, with particular attention to the variances that may be related to one another: Required: 1. Selling-price variance 2. Direct materials price variance, for each category of materials 3. Direct materials efficiency variance, for each category of materials 4. Direct manufacturing labor price variance, for setup and fabrication 5. Direct manufacturing labor efficiency variance, for setup and fabrication





Transcribed Image Text:

Home Insert Page Layout Formulas Data Review View A в D Quantity per Standard 2 Cost Item Mini SD card Unit Costs Direct materials: Specialty polymer Connector pins Wi-Fi transreceiver $0.05 /mm 0.10 lunit 4 17 mm 10 units 1 lunit 0.50 /unit 7 Direct manufacturing labor. 24.00 hr. 30.00 hr. Setup 1 min. 10 Fabrication 2 min. 1. 5. Home Insert Page Layout Formulas Data Review View Performance Report, June 2017 13 Budget 420,000 Actual Variance 14 462,000 15 Output units 16 Revenues 17 Direct materials 18 Direct manufacturing labor 42,000 $266,700 213,000 40,400 F $3,626,700 1,200,000 628,400 $3,360,000 987,000 588,000 Home Insert Page Layout Formulas Data Review View Input Usage Report, June 2017 21 22 Cost Item Quantity Actual Cost 23 Direct materials: Specialty polymer Connector pins Wi-Fi transreceiver 8,300,000 $415,000 24 mm 5,000,000 470,000 units units 550,000 235,000 25 26 27 28 Direct manufacturing labor. Setup 455,000 min. 182,000 446,400 29 30 Fabrication 864,000 min.



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> The Coby Company expects sales in 2018 of 201,000 units of serving trays. Coby’s beginning inventory for 2018 is 13,000 trays, and its target ending inventory is 29,000 trays. Compute the number of trays budgeted for production in 2018.

> Raynham’s Radiology Center (RRC) performs X-rays, ultrasounds, computer tomography (CT) scans, and magnetic resonance imaging (MRI). RRC has developed a reputation as a top radiology center in the state. RRC has achieved this status bec

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> Estevez Company uses normal costing in its job-costing system. The company produces kitchen cabinets. The beginning balances (December 1) and ending balances (as of December 30) in their inventory accounts are as follows: Additional information follows:

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> The Clarkson Company produces engine parts for car manufacturers. A new accountant intern at Clarkson has accidentally deleted the company’s variance analysis calculations for the year ended December 31, 2017. The following table is wha

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> What are four key perspectives in the balanced scorecard?

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> Sweeney Enterprises manufactures tires for the Formula I motor racing circuit. For August 2017, it budgeted to manufacture and sell 3,600 tires at a variable cost of $71 per tire and total fixed costs of $55,000. The budgeted selling price was $114 per t

> HealthMart is a retail store selling home oxygen equipment. HealthMart also services home oxygen equipment, for which the company bills customers monthly. HealthMart has budgeted for increases in service revenue of $200 each month due to a recent adverti

> Consider each of the following independent situations for Sunrise Tours, a company owned by David Bartlett that sells motor coach tours to schools and other groups. Sunshine Tours owns a fleet of 10 motor coaches and employs 12 drivers, maintenance techn

> Consider each of the following independent situations for Prestige Fountains. Prestige manufactures and sells decorative fountains for commercial properties. The company also contracts to service both its own and other brands of fountains. Prestige has a

> Jiffy Mart has a Kaizen (continuous improvement) approach to budgeting monthly activity costs for each month of 2018. Each successive month, the budgeted cost-driver rate decreases by 0.4% relative to the preceding month. So, for example, February’s budg

> The Jerico store of Jiffy Mart, a chain of small neighborhood convenience stores, is preparing its activity-based budget for January 2018. Jiffy Mart has three product categories: soft drinks (35% of cost of goods sold [COGS]), fresh produce (25% of COGS

> DeWitt Company makes and sells artistic frames for pictures of weddings, graduations, and other special events. Ron Bahar, the controller, is responsible for preparing DeWitt’s master budget and has accumulated the following information

> Ever Clean Company provides gutter cleaning services to residential clients. The company has enjoyed considerable growth in recent years due to a successful marketing campaign and favorable reviews on service-rating Web sites. Ever Clean owner Joanne Cla

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> Describe two potential problems that should be avoided in relevant-cost analysis.

> Saphire, Inc., bottles and distributes mineral water from the company’s natural springs in northern Oregon. Saphire markets two products: 12-ounce disposable plastic bottles and 1-gallon reusable plastic containers. Required: 1. For 2018, Saphire market

> The Yucatan Co. in Mexico has a division that manufactures bicycles. Its budgeted sales for Model XG in 2018 are 95,000 units. Yucatan’s target ending inventory is 7,000 units, and its beginning inventory is 11,000 units. The company’s budgeted selling p

> What are the three methods for determining transfer prices?

> “Organizations typically adopt a consistent decentralization or centralization philosophy across all their business functions.” Do you agree? Explain.

> What is the relationship among motivation, goal congruence, and effort?

> Describe three criteria you would use to evaluate whether a management control system is effective.

> The McGrath Company has prepared a sales budget of 42,000 finished units for a 3-month period. The company has an inventory of 13,000 units of finished goods on hand at December 31 and has a target finished-goods inventory of 15,000 units at the end of t

> What is a management control system?

> “All transfer-pricing methods give the same division operating income.” Do you agree? Explain.

> What properties should transfer-pricing systems have?

> Give an example of how, under absorption costing, operating income could fall even though the unit sales level rises.

> The main trouble with variable costing is that it ignores the increasing importance of fixed costs in manufacturing companies. Do you agree? Why?

> Describe the difference between a direct materials efficiency variance and a variable manufacturing overhead efficiency variance.

> Assume variable manufacturing overhead is allocated using machine-hours. Give three possible reasons for a favorable variable overhead efficiency variance.

> Name four approaches to estimating a cost function.

> Do companies in either the service sector or the merchandising sector make choices about absorption costing versus variable costing?

> When using the high-low method, should you base the high and low observations on the dependent variable or on the cost driver?

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