Woods, Inc. budgeted the following overhead costs for the current year assuming operations at 80% of capacity, or 40,000 units:Total variable overhead……..$240,000Total fixed overhead…………………………………….560,000Total overhead……………………………………………$800,000The standard cost per unit when operating at this same 80% capacity level is:Direct materials (5 lbs. @ $4/lb.)…………………….$20.00Direct labor (2 hrs. @ $8.75/hr.)……………………..17.50Variable overhead (2 hrs. @ $3/hr.)…………………6.00Fixed overhead (2 hrs. @ $7/hr.)…………………….14.00Total cost per unit………………………………………..$57.50The actual production achieved in the current year was 60% of capacity, or 30,000 units. The actual costs were:Direct materials (150,350 lbs.)………………………..$616,435Direct labor (59,800 hrs.)………………………………520,260Variable overhead……………………………………….192,000Fixed overhead……………………………………………552,000Calculate 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.———————————–Hess Company 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.Required:a. What is the current breakeven point in units before the newer machine is purchased?b. What effect would the purchase of the new machine have on Hess’s break-even point in units?c. Suppose the newer machine is bought and the company wishes to make a net income of $12,000, how much is sales dollars will have to be sold to achieve that goal?d. Calculate the margin of safety at the level of sales in part c above and the newer production machine is purchased.
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