Vous êtes sur la page 1sur 4

# Summary Lupton Company manufactures two products and uses a standard costing system.

Standards were used without change for the entire calendar year. The company has hired us HKS Consulting to make a detailed analysis of the April and May results. Analysis 1. We found that for the months of April and May Lupton Company spent less for their production operations than they had anticipated by looking at the production variances in the Gross Margin Statement. However, we would like to note that the materials price is not necessarily relevant, because its not about the prices used in the production of the products. 2. Since the actual production overhead costs were the same both months, the product volume could have caused the decrease in unfavorable overhead variance for May. This would mean that more overhead would have been absorbed in May and results in an increased production volume in May than there was in April. 3. The production level for the month of April is higher than the standard volume. The production level is based on the direct labor dollars per month every month. For the month of April its direct labor volume was \$184,000, which is above the standard volume of \$123,000. 4. Mays production level was higher than Aprils, as we stated in question 2. The production level is based on the direct labor dollars per month every month. For the month of May its direct labor volume \$123,000, which is actually the same as the \$123,000 standard labor volume. 5. Sales revenue decreased from April to May by 25% (1 - [\$553,500/\$738,000]). The total standard gross margin decreased from April to May by 12% (1 [\$184,500/\$209,100]). Standard gross margin percentage can be found by dividing standard gross margin by sales revenue. The standard gross margin percentage increased from 28% (\$209,100/\$738,000) in April, to 33% (\$184,500/\$553,500) in May. This change could be due to an increase in sales of whichever product, A or B, has the higher contribution margin. The selling price may have increased for a product, which would lead to higher contribution margin (Contribution margin = Price Variable costs) 6. Although one raw material purchase price is decreasing, there could be other raw materials whose purchase price is increasing. This could then lead to the increase in unfavorable materials price variance. If only taking into consideration the one raw material, this increase in unfavorable materials price variances is still possible to occur. If Mays actual price is still below the standard price, then the unit price variance will remain unfavorable. If the increase in quantity purchased in May exceeds the amount that would compensate for the decreased unit price variance, then the unfavorable price variance would increase from April to May.

7. We think total gross margin at standard is not affected by any production activity, or by purchasing. Actual total gross margin in Lupton is based on standard cost per unit sold and on the month's production variances. The May materials price variance was less unfavorable than it would have been had the price of this material not dropped. The unfavorable material price variance resulted in an increase in total actual gross margin. 8. Since it is still caused by the purchase of lower-priced raw material, the effect should be same as question 7 9. Overhead is absorbed on the basis of direct labor dollars, not material dollars for Lupton Company. This can be calculated by dividing the standard overhead by the standard direct labor and direct materials for each month. We calculated that for both the month of April and May the absorbed overhead is 80% of the standard direct labor, while the absorbed overhead was different percentages of the direct materials. 10. The standard direct cost per unit of Product A is \$18.45. This number is found by taking the full standard cost minus the standard material cost per unit to get the standard labor and overhead. Then, as we already calculated, the overhead is 80% of the standard direct labor. Calculations are as follows: \$45.51-\$12.30=\$33.21 X+.8X=33.21 X = \$18.45 11. Table 1 allows us to conclude that there were not any improvements in total material usage from April to May. The 3.33% represents the percentage of material not used and therefore wasted during the production process. Table #1

Product "A" Work in Process Product "B" Work in Process Total Work in Process Material Usage Variance Material Usage Variance/Work in Process

## May \$31,365 \$79,335 \$110,700 \$3,690 3.33%

12. The combined dollar balance for Works In Process and Finished Goods decreased between April and May. In order to figure out the change between the Work In Process (WIP) and Finished Goods (FG) accounts we must identify the debits that go into WIP and the credits that go into FG. If the debits are greater than the credits, it would mean the combined dollar balance had increased. The credits that would go into FG is the \$369,000 of standard Costs of Good Sold (COGS). To find the debits for the WIP account, we must find the materials, labor, and overhead. The overhead is calculated by subtracting the

overhead variance of (\$18,460) from the standard overhead of (\$98,400), which would give us \$79,940. Then to figure out the labor we divide the overhead by the 80% of absorbed direct labor (\$79,940/.8 = \$99,925). To figure out the materials that went into WIP, we add together the two products, which is given in the case (\$79,335 + \$31,365 = \$110,700.) After all of these factors are figured we add them all together to get the total debits of WIP (\$79,940 + \$99,925 + \$110,700 = \$290,565). Therefore, the debits of \$290,565 are less than the credits of \$369,000. This would indicate that the combined dollar balance decreased. 13. The proportion of Product A sold decreased from April to May. We calculated this by dividing the materials by the total cost to get the proportion of As materials (\$12.30/\$45.51 = .27). We then calculate the total by dividing materials/total cost for the months of April and May. For April we calculated .37 from (196,800/528,900) and then for the month of May we got .40 from (147,600/369,000). This would show that the proportion of Product A decreased between these months. We used this same method for direct labor and we got: Aprils .35 and Mays is .33, which also shows a decrease. 14. Mays overhead spending variance is \$6,922.50 Unfavorable. We first must calculate the overhead rate, which is shown below: