Woods Inc/Hess Company

Woods, Inc. budgeted the following overhead costs for the current year assuming operations at 80% of capacity, or 40,000 units: 

Total variable overhead........ 

$240,000 

Total fixed overhead........................................... 

560,000 

Total overhead................................................... 

$800,000 

The standard cost per unit when operating at this same 80% capacity level is: 





Direct materials (5 lbs. @ $4/lb.).........................

$20.00 

Direct labor (2 hrs. @ $8.75/hr.)..........................

17.50 

Variable overhead (2 hrs. @ $3/hr.).....................

6.00 

Fixed overhead (2 hrs. @ $7/hr.).........................

14.00 

Total cost per unit............................................... 

$57.50 





The actual production achieved in the current year was 60% of capacity, or 30,000 units. The actual costs were: 



Direct materials (150,350 lbs.).............................

$616,435 

Direct labor (59,800 hrs.).................................... 

520,260 

Variable overhead.............................................. 

192,000 

Fixed overhead................................................... 

552,000 





Calculate the following variances and indicate whether each is favorable (F) or unfavorable (U).

a. The material price variance and the material quantity variance.

b. The labor rate variance and the labor efficiency variance.

c. The variable overhead spending variance and the efficiency variance.

d. The fixed overhead spending variance and the volume variance.

2-Hess Co. manufactures a product that sells for $12 per unit. Total fixed costs are $96,000 and variable costs are $7 per unit. Hess can buy a newer production machine that will increase total fixed costs by $22,800 but variable costs will be decreased by $0.40 per unit.

What effect would the purchase of the new machine have on Hess's break-even point in units?