What is the expected total cost to a company of a batch of 4,000 tires?

Question

A manufacturing company produces tires at a cost of $75 each.

The following are probabilities of defective tires in a given

production run: probability of no defective tires 8%; probability of

1% defective tires 30%; probability of 2% defective tires 37%;

probability of 3% defective tires 25%. When a defective tire is

detected, it must be removed from the assembly line. The tire is

discarded, and replaced by another tire, both at the full $75 cost.

This process also adds an extra $6 to the cost to install the

replacement tire.

a) What is the expected total cost to the company of a batch of

4,000 tires? Show your calculations

Answer 1

Standard Price 6.70 Per Yard

20.1/3

SP

Standard quantity Per unit 6.70 Per Yard

3 Yards

6600 Yards

SQ

2200 Units

7400 Yards

7400 Yards

5.50 Per Yard

Standard Quantity for Actual Output

3 2200

Actual Output

Actual Quantity Purchased

AQP

Actual Quantity Used

AQ

Material Price Variance



6.70 ) =



-8880



( 7400 * 5.50) - (



7400



Material Quantity Variance



( 7400 *



6.70) - ( 6600



6.70) =



5360



Labor rate Variance 1000 * 8.14) - ( 1000 * 6.00) =



2140



labor Efficiency Variance



(1000 6.00) - (



*



1100 6.00) =



Variable Overhead Rate Variance



-600



760



1000 3.96) ( 1000 3.20) =



Variable Overhead Efficiency Variance



1000



3.20) - ( 1100 3.20) = 

-320

Material Price Variance



(AQ*AP)-(AQ*SP)



Material Quantity Variance (AQ*SP)-(SQ*SP)



Labor rate Variance



(AH*AR)-(AH*SR)



labor Efficiency Variance



(AH*SR)-(SH*SR)



Variable Overhead Rate Variance



(AH*AR)-(AH*SR)



Variable Overhead Efficiency Variance



(AH*SR)-(SH*SR)



600 F



760 U



320 F

Actual Price of Material