# University of Missouri St Louis Cost Accounting Variances Questions

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pcnjnaanor

University Of Missouri St Louis

## Description

Green Bay produces two types of paperboard: plain paperboard and glossy paperboard, which is plain paperboard with some additional processing to add the plastic gloss.

Green Bay uses standard costing with absorption costing and writes all variances off directly to Cost of Goods Sold at the end of each year.

There is no inventory at either the start or the end of the year.

The budget calls for producing 100 million square meters of plain paperboard and 20 million square meters of glossy paperboard with the following costs:

Wood pulp \$9,600,000 (1)

Plastic 3,600,000 (2)

Total Costs\$127,200,000

(1) Green Bay’s standard is to use 0.2 gallons of wood pulp per square meter of paperboard (regardless of whether it is plain or glossy).

(2) Green Bay’s standard is to use 1 pound of plastic for every 20 square meters of glossy paperboard.No plastic is used in the production of plain paperboard.

(3) Variable overhead (mostly composed of the cost of electricity, used to operate machinery, but also including labor costs) is allocated based on machine hours.Green Bay’s standard is for each machine hour to produce either 5,000 square meters of plain paperboard OR 4,000 square meters of glossy paperboard.

(4) Fixed overhead (mostly representing facilities costs) is allocated based on square meters of paperboard.For this purpose, no distinction is made between plain and glossy paperboard.

During the year, Green Bay actually produced 112 million square meters of plain paperboard and 16 million square meters of glossy paperboard.The actual costs were:

Wood pulp \$16,128,000 (26,880,000 gallons purchased and used)

Plastic 3,024,000 (960,000 pounds purchased and used)

Variable overhead56,160,000 (21,600 machine hours (5))

Total Costs\$135,472,000

(5) Of this, 4,800 hours were used to produce the 16 million square meters of glossy paperboard, and the rest were used to produce the 112 million square meters of plain paperboard.

1. Compute the direct materials efficiency variance for plastic

2. Compute the direct materials price variance for wood pulp (the effect on direct materials cost of the change in the price of a gallon of wood pulp)

3. Compute the variable overhead effiency variance (captures the effect on variable overhead of the change in the number of machine hours required to produce each square meter of paperboard)

4. Compute the fixed overhead volume variance (captures the effect on fixed overhead cost applied of the change in output produced)

5.What will be Green Bay’s total cost of goods sold for the year before allocation of over/under applied costs?

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Cost Accounting Variances
Question 1
Direct materials efficiency variance for plastic
Direct materials efficiency variance = (Actual materials usage – Standard materials usage)*
standard cost
Actual materials usage = 960,000 pounds of plastic
Standard materials usage = 1* (16,000,000/20) = 800,000
Standard cost of materials =3,600,000/ (20,000,000/20) = \$3.6
Direct materials efficiency variance = (960,000 – 800,000)*3.6
Direct materi...

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