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(Solution Download) PROBLEM 10?22 Basic Variance Analysis [LO2, LO3, LO4] VitalAid Inc. manufactures a vacuum-sealed...

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PROBLEM 10?22 Basic Variance Analysis [LO2, LO3, LO4]

VitalAid Inc. manufactures a vacuum-sealed high-protein food supplement that it sells to food aid organizations around the world. The company uses variable costing in conjunction with a standard costing system and has established the following standards for one package of VitalAid bars:



During October, the company recorded the following activity relative to production of VitalAid:

a.       The company produced 4,000 packages during October.

b.       A total of 1,800 kilograms of material was purchased at a cost of $19,800.

c.       There was no beginning inventory of materials; however, at the end of the month, 300 kilograms of material remained in ending inventory.

d.       The company employs 5 people to work on the production of VitalAid. During October, each employee worked an average of 185 hours at an average rate of $14.00 per hour.

e.       Variable manufacturing overhead is assigned to VitalAid on the basis of direct labour- hours. Variable manufacturing overhead costs during October totalled $1,850.

The company?s management is anxious to determine the efficiency of the VitalAid pro- duction activities.


1.              a.       Compute the price and quantity variances for direct materials used in the produc- tion of VitalAid.

b. The materials were purchased from a new supplier who is anxious to enter into a long-term purchase contract. Would you recommend that the company sign the con- tract? Explain.

2.              a.       Compute the rate and efficiency variances for labour employed in the production of VitalAid.

b. In the past, the 5 people employed in the production of VitalAid consisted of 3 senior workers and 2 assistants. During October, the company experimented with 4 senior workers and 1 assistant. Would you recommend that the new labour mix be contin- ued? Explain.

3.              Compute the variable overhead spending and efficiency variances. What relationship can you see between this efficiency variance and the labour efficiency variance?



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