PROBLEM 9-11B Basic Variance Analysis (LO2, LO3, LO4)
CHECK FIGURE
(1a) Materials price variance: $15,625 F
(2a) Labor efficiency variance: $13,260 U
Burton Labs, Inc. produces various chemical compounds for industrial use. One compound, called Soft Iron, is
prepared by means of an elaborate distilling process. The company has developed standard costs for one unit of Soft
Iron as follows:
Standard
Standard Price Standard
Quantity
or Rate
Cost
Direct materials ....................................................................................................................
2.6 ounces $20.50 per ounce
$53.30
Direct labor ..........................................................................................................................
1.5 hours
$13.00 per hour
19.50
Variable manufacturing overhead ........................................................................................
1.5 hours
$4.00 per hour
6.00
$78.80
During November, the following activity was recorded by the company relative to production of Soft Iron:
a. Materials purchased, 12,500 ounces at a cost of $240,625.
b. There was no beginning inventory of materials; however, at the end of the month, 3,300 ounces of material
remained in ending inventory.
c. The company employs 38 lab technicians to work on the production of Soft Iron. During November, each
worked an average of 165 hours each at an average rate of $11.50 per hour.
d. Variable manufacturing overhead is assigned to Soft Iron on the basis of direct labor-hours. Variable
manufacturing overhead costs during November totaled $20,378.
e. During November, 3,500 good units of Soft Iron were produced.
The company’s management is anxious to determine the efficiency of the Soft Iron production activities.
Required:
1. For direct materials used in the production of Soft Iron:
a. Compute the price and quantity variances.
b. The materials were purchased from a new supplier who is anxious to enter into a long-term purchase
contract. Would you recommend that the company sign the contract? Explain.
2. For direct labor employed in the production of Soft Iron:
a. Compute the rate and efficiency variances.
b. In the past, the 38 technicians employed in the production of Soft Iron consisted of 23 senior technicians
and 15 assistants. During November, the company experimented with fewer senior technicians and more
assistants in order to save costs. Would you recommend that the new labor mix be continued? Explain.
3. Compute the variable overhead rate and efficiency variances. What relation can you see between this efficiency
variance and the labor efficiency variance?
PROBLEM 9-12B Comprehensive Variance Analysis (LO2, LO3, LO4)
CHECK FIGURE
(1a) Materials price variance: $2,900 F
(2) Net variance: $11,005 U
Troy Company manufactures a plastic swimming pool at its Madrid Plant. The plant has been experiencing
problems for some time as shown by its June contribution format income statement below:
Budgeted
Actual
Sales (15,500 pools) .............................................................................................................
$511,500 $511,500
Less variable expenses:
Variable cost of goods sold* .................................................................................................
232,965
243,970
Variable selling expenses ......................................................................................................
21,700
21,700
Total variable expenses ........................................................................................................
254,665
265,670
Contribution margin .............................................................................................................
256,835
245,830
Less fixed expenses:
Manufacturing overhead .......................................................................................................
120,000
120,000
Selling and administrative .....................................................................................................
86,000
86,000
Total fixed expenses.............................................................................................................
206,000
206,000
Net operating income ...........................................................................................................
$ 50,835 $ 39,830
*Contains direct materials, direct labor, and variable manufacturing overhead.
Jane Durham, who has just been appointed general manager of the Madrid Plant, has been given instructions to “get
things under control.” Upon reviewing the plant’s income statement, Ms. Durham has concluded that the major
problem lies in the variable cost of goods sold. She has been provided with the following standard cost per
swimming pool:
Standard Quantity
Standard Price
Standard
or Hours
or Rate
Cost
Direct materials ....................................................................................................................
3.0 pounds
$2.05 per pound
$ 6.15
Direct labor ..........................................................................................................................
0.8 hour
$9.50 per hour
7.60
Variable manufacturing overhead ........................................................................................
0.4 hour *
$3.20 per hour
1.28
Total standard cost ...............................................................................................................
$15.03
* Based on machine-hours.
Ms. Durham has determined that during June the plant produced 15,500 pools and incurred the following costs:
a. Purchased 58,000 pounds of materials at a cost of $2.00 per pound.
b. Used 51,000 pounds of materials in production. (Finished goods and work in process inventories are
insignificant and can be ignored.)
c. Worked 12,100 direct labor-hours at a cost of $10.20 per hour.
d. Incurred variable manufacturing overhead cost totaling $18,900 for the month. A total of 6,000 machine-hours
was recorded.
It is the company’s policy to close all variances to cost of goods sold on a monthly basis.
Required:
1. Compute the following variances for June:
a. Direct materials price and quantity variances.
b. Direct labor rate and efficiency variances.
c. Variable overhead rate and efficiency variances.
2. Summarize the variances that you computed in (1) above by showing the net overall favorable or unfavorable
variance for the month. What impact did this figure have on the company’s income statement? Show
computations.
3. Pick out the two most significant variances that you computed in (1) above. Explain to Ms. Durham possible
causes of these variances.
PROBLEM 9-13B Variance Analysis in a Hospital (LO2, LO3, LO4)
CHECK FIGURE
(1) Materials quantity variance: $8,500 U
(2a) Labor rate variance: $2,950 F
Roger McEnroe, chief administrator for Mountain View Hospital, is concerned about costs for tests in the hospital’s
lab. Charges for lab tests are consistently higher at Mountain View than at other hospitals and have resulted in many
complaints. Also, because of strict regulations on amounts reimbursed for lab tests, payments received from
insurance companies and governmental units have not been high enough to cover lab costs.
Mr. McEnroe has asked you to evaluate costs in the hospital’s lab for the past month. The following information
is available:
a. Two types of tests are performed in the lab—blood tests and smears. During the past month, 1,500 blood tests
and 2,100 smears were performed in the lab.
b. Small glass plates are used in both types of tests. During the past month, the hospital purchased 12,200 plates at
a cost of $29,524. This cost is net of a $0.08 per plate quantity discount. 1,600 of these plates were unused at
the end of the month; no plates were on hand at the beginning of the month.
c. During the past month, 1,180 hours of labor time were recorded in the lab at a cost of $14,160.
d. The lab’s variable overhead cost last month totaled $7,906.
Mountain View Hospital has never used standard costs. By searching industry literature, however, you have
determined the following nationwide averages for hospital labs:
Plates: Two plates are required per lab test. These plates cost $2.50 each and are disposed of after the test is
completed.
Labor: Each blood test should require 0.30 hours to complete, and each smear should require 0.20 hours to
complete. The average cost of this lab time is $14.50 per hour.
Overhead: Overhead cost is based on direct labor-hours. The average rate for variable overhead is $6.50 per hour.
Required:
1. Compute a materials price variance for the plates purchased last month and a materials quantity variance for the
plates used last month.
2. For labor cost in the lab:
a. Compute a labor rate variance and a labor efficiency variance.
b. In most hospitals, one-half of the workers in the lab are senior technicians and one-half are assistants. In an
effort to reduce costs, Mountain View Hospital employs only one-fourth senior technicians and threefourths assistants. Would you recommend that this policy be continued? Explain.
3. Compute the variable overhead rate and efficiency variances. Is there any relation between the variable
overhead efficiency variance and the labor efficiency variance? Explain.
PROBLEM 9-14B Setting Standards (LO1)
CHECK FIGURE
(1) Nyclyn: 21.0 kilograms
(3) Standard cost: $103.72
Hampton Corporation is a chemical manufacturer that supplies various products to industrial users. The company
plans to introduce a new chemical solution, called Nysap, for which it needs to develop a standard product cost. The
following information is available on the production of Nysap:
a. Nysap is made by combining a chemical compound (nyclyn) and a solution (salex), and boiling the mixture. A
20% loss in volume occurs for both the salex and the nyclyn during boiling. After boiling, the mixture consists
of 7.2 liters of salex and 14.0 kilograms of nyclyn per 10-liter batch of Nysap.
b. After the boiling process is complete, the solution is cooled slightly before 5 kilograms of protet are added per
10-liter batch of Nysap. The addition of the protet does not affect the total liquid volume. The resulting solution
is then bottled in 10-liter containers.
c. The finished product is highly unstable, and one 10-liter batch out of five is rejected at final inspection.
Rejected batches have no commercial value and are thrown out.
d. It takes a worker 35 minutes to process one 10-liter batch of Nysap. Employees work an eight-hour day,
including one hour per day for rest breaks and cleanup.
Required:
1. Determine the standard quantity for each of the raw materials needed to produce an acceptable 10-liter batch of
Nysap.
2. Determine the standard labor time to produce an acceptable 10-liter batch of Nysap.
3. Assuming the following purchase prices and costs, prepare a standard cost card for materials and labor for one
acceptable 10-liter batch of Nysap:
Salex .....................................................................................................................................
$1.75 per liter
Nyclyn ..................................................................................................................................
$2.90 per kilogram
Protet.....................................................................................................................................
$2.80 per kilogram
Direct labor cost ....................................................................................................................
$8.90 per hour
(CMA, adapted)
PROBLEM 9-15B Direct Materials and Direct Labor Variances; Computations from Incomplete Data
(LO1, LO2, LO3)
CHECK FIGURE
(1a) Actual cost $5.80 per foot
(2a) Standard labor rate: $8.00
Krug Company manufactures a product for which the following standards have been set:
Standard
Quantity
Standard Price Standard
or Hours
or Rate
Cost
Direct materials ....................................................................................................................
2.50 feet
$5.50 per foot
$13.75
Direct labor ..........................................................................................................................
? hours
? per hour
?
During March, the company purchased direct materials at a cost of $44,080, all of which were used in the
production of 3,100 units of product. In addition, 5,000 hours of direct labor time were worked on the product
during the month. The cost of this labor time was $39,000. The following variances have been computed for the
month:
Materials quantity variance ..................................................................................................
$825 F
Total labor variance .............................................................................................................
$1,000 F
Labor efficiency variance .....................................................................................................
$320 U
Required:
1. For direct materials:
a. Compute the actual cost per foot for materials for March.
b. Compute the materials price variance and a total variance for materials.
2. For direct labor:
a. Compute the standard direct labor rate per hour.
b. Compute the standard hours allowed for the month’s production.
c. Compute the standard hours allowed per unit of product.
(Hint: In completing the problem, it may be helpful to move from known to unknown data either by using the
columnar format shown in Exhibits 9–4 and 9–6 or by using the variance formulas.)
PROBLEM 9-16B Comprehensive Variance Analysis (LO1, LO2, LO3, LO4)
CHECK FIGURE
(1) Standard cost: $30.80
(3) 2.75 yards
Peak View Company produces a lightweight backpack that is popular with college students. Standard variable costs
relating to a single backpack are given below:
Standard Quantity
or Hours
Standard Price or Rate
Standard Cost
Direct materials ....................................................................................................................
?
$6.00
per yard
$?
Direct labor...........................................................................................................................
?
?
?
Variable manufacturing overhead ........................................................................................
?
$3.00 per direct labor-hour
?
Total standard cost ...............................................................................................................
?
Overhead is applied to production on the basis of direct labor-hours. During March 1,000 backpacks were
manufactured and sold. Selected information relating to the month’s production is given below:
Variable
Materials
Direct
Manufacturing
Used
Labor
Overhead
Total standard cost allowed* ................................................................................................
$16,500
$10,400
$3,900
Actual costs incurred ............................................................................................................
$16,820
?
$2,800
Materials price variance .......................................................................................................
?
Materials quantity variance ..................................................................................................
$900 U
Labor rate variance ...............................................................................................................
?
Labor efficiency variance .....................................................................................................
?
Variable overhead rate variance ...........................................................................................
?
Variable overhead efficiency variance .................................................................................
?
*For the month’s production
The following additional information is available for March’s production:
Actual direct labor-hours ......................................................................................................
1,600
Standard overhead rate per direct labor-hour .......................................................................
$3.00
Standard price of one yard of materials ................................................................................
$6.00
Difference between standard and actual cost
per backpack produced during March...............................................................................
$2.02 U
Required:
1.
2.
3.
4.
5.
What is the standard cost of a single backpack?
What was the actual cost per backpack produced during March?
How many yards of material are required at standard per backpack?
What was the materials price variance for March?
What is the standard direct labor rate per hour?
6. What was the labor rate variance for March? The labor efficiency variance?
7. What was the variable overhead rate variance for March? The variable overhead efficiency variance?
8. Prepare a standard cost card for one backpack.
PROBLEM 9-17B Developing Standard Costs (LO1)
CHECK FIGURE
(1) Standard cost: $28.12
Fruity Corporation is a small producer of fruit-flavored frozen desserts. For many years, Fruity’s products have had
strong regional sales on the basis of brand recognition; however, other companies have begun marketing similar
products in the area, and price competition has become increasingly intense. Johnny Appleseed, the company’s
controller, is planning to implement a standard cost system for Fruity and has gathered considerable information
from his co-workers on production and material requirements for Fruity’s products. Appleseed believes that the use
of standard costing will allow Fruity to improve cost control and make better pricing decisions.
Fruity’s most popular product is raspberry sherbet. The sherbet is produced in 10-gallon batches, and each batch
requires 4 quarts of good raspberries. The fresh raspberries are sorted by hand before they enter the production
process. Because of imperfections in the raspberries and normal spoilage, 1 quart of berries is discarded for every 5
quarts of acceptable berries. Two minutes is the standard direct labor time for the sorting that is required to obtain 1
quart of acceptable raspberries. The acceptable raspberries are then blended with the other ingredients; blending
requires 10 minutes of direct labor time per batch. After blending, the sherbet is packaged in quart containers.
Appleseed has gathered the following pricing information:
a. Fruity purchases raspberries at a cost of $0.75 per quart. All other ingredients cost a total of $1.20 per gallon.
b. Direct labor is paid at the rate of $8.40 per hour.
c. The total cost of direct material and direct labor required to package the sherbet is $0.25 per quart.
Required:
1. Develop the standard cost for the direct cost components (materials, labor, and packaging) of a 10-gallon batch
of raspberry sherbet. The standard cost should identify the standard quantity, standard rate, and standard cost
per batch for each direct cost component of a batch of raspberry sherbet.
2. As part of the implementation of a standard cost system at Fruity, Johnny Appleseed plans to train those
responsible for maintaining the standards on how to use variance analysis. Appleseed is particularly concerned
with the causes of unfavorable variances.
a. Discuss possible causes of unfavorable materials price variances and identify the individual(s) who should
be held responsible for these variances.
b. Discuss possible causes of unfavorable labor efficiency variances and identify the individual(s) who should
be held responsible for these variances.
(CMA, adapted)
Chapter 9 Appendix A Problems
PROBLEM 9A-8B Comprehensive Standard Cost Variances (LO1, LO2, LO3, LO4, LO5)
CHECK FIGURE
(2) Materials quantity variance: $7,800 F
(3) Volume variance: $8,120 F
Cross Company uses a standard cost system and sets predetermined overhead rates on the basis of direct laborhours. The following data are taken from the company’s budget for the current year:
Denominator activity (direct labor-hours) ............................................................................
25,000
Variable manufacturing overhead cost .................................................................................
$65,000
Fixed manufacturing overhead cost ......................................................................................
$145,000
The standard cost card for the company’s only product is given below:
Direct materials, 5 yards at $5.20 per yard ...........................................................................
$26.00
Direct labor, 4 hours at $7.50 per hour .................................................................................
30.00
Manufacturing overhead, 112% of direct labor cost .............................................................
33.60
Standard cost per unit ...........................................................................................................
$89.60
During the year, the company produced 6,600 units of product and incurred the following costs:
Materials purchased, 35,400 yards at $5.50 per yard ...........................................................
$194,700
Materials used in production (in yards) ................................................................................
31,500
Direct labor cost incurred, 26,000 hours at $7.60 per hour ..................................................
$197,600
Variable manufacturing overhead cost incurred ...................................................................
$69,700
Fixed manufacturing overhead cost incurred........................................................................
$143,000
Required:
1. Redo the standard cost card in a clearer, more usable format by detailing the variable and fixed overhead cost
elements.
2. Prepare an analysis of the variances for materials and labor for the year.
3. Prepare an analysis of the variances for variable and fixed overhead for the year.
4. What effect, if any, does the choice of a denominator activity level have on unit standard costs? Is the volume
variance a controllable variance from a spending point of view? Explain.
PROBLEM 9A-9B Comprehensive Standard Cost Variances (LO2, LO3, LO4, LO5)
CHECK FIGURE
(3a) Efficiency variance: $10,800 U
(3b) Volume variance: $27,000 F
“Wonderful! Not only did our salespeople do a good job in meeting the sales budget this year, but our production
people did a good job in controlling costs as well,” said Amy Mandrel, president of Mandrel Company. “Our
$45,600 overall manufacturing cost variance is only 2.87% of the $1,587,500 standard cost of products made during
the year. That’s well within the 3% parameter set by management for acceptable variances. It looks like everyone
will be in line for a bonus this year.”
The company produces and sells a single product. The standard cost card for the product follows:
Standard Cost Card—per Unit of Product
Direct materials, 3.0 feet at $6.50 per foot ...........................................................................
$19.50
Direct labor, 2.2 direct labor-hours at $12.50 per direct labor hour .....................................
27.50
Variable overhead, 2.2 direct labor-hours at $4.50 per direct labor hour .............................
9.90
Fixed overhead, 2.2 direct labor-hours at $3.00 per direct labor-hour .................................
6.60
Standard cost per unit ...........................................................................................................
$63.50
The following additional information is available for the year just completed:
a. The company manufactured 25,000 units of product during the year.
b. A total of 78,100 feet of material was purchased during the year at a cost of $6.60 per foot. All of this material
was used to manufacture the 25,000 units. There were no beginning or ending inventories for the year.
c. The company worked 57,400 direct labor-hours during the year at a cost of $12.60 per direct labor-hour.
d. Overhead is applied to products on the basis of direct labor-hours. Data relating to manufacturing overhead
costs follow:
Denominator activity level (direct labor-hours) ...................................................................
46,000
Budgeted fixed overhead costs (from the overhead flexible budget) ...................................
$138,000
Actual variable overhead costs incurred ...............................................................................
$253,100
Actual fixed overhead costs incurred ...................................................................................
$141,300
Required:
1. Compute the direct materials price and quantity variances for the year.
2. Compute the direct labor rate and efficiency variances for the year.
3. For manufacturing overhead compute:
a. The variable overhead rate and efficiency variances for the year.
b. The fixed overhead budget and volume variances for the year.
4. Total the variances you have computed, and compare the net amount with the $45,600 mentioned by the
president. Do you agree that bonuses should be given to everyone for good cost control during the year?
Explain.
PROBLEM 9A-10B Applying Overhead; Overhead Variances (LO4, LO5)
CHECK FIGURE
(3) Rate variance: € 14,200 U
Budget variance: € 1,800 F
Agata, S.A., of Krakow, Poland, is a major producer of classic Polish sausage. The company uses a standard cost
system to help control costs. Manufacturing overhead is applied to production on the basis of standard direct laborhours. According to the company’s flexible budget, the following manufacturing overhead costs should be incurred
at an activity level of 46,000 labor-hours (the denominator activity level):
Variable manufacturing overhead costs ..............................................................................
€ 138,000
Fixed manufacturing overhead costs ....................................................................................
345,000
Total manufacturing overhead cost ......................................................................................
€ 483,000
The currency in Poland is the euro, which is denoted here by €.
During the most recent year, the following operating results were recorded:
Activity:
Actual labor-hours worked ...................................................................................................
40,000
Standard labor-hours allowed for output ..............................................................................
44,000
Cost:
Actual variable manufacturing overhead cost
incurred .............................................................................................................................
€ 134,200
Actual fixed manufacturing overhead cost
incurred .............................................................................................................................
€ 343,200
At the end of the year, the company’s Manufacturing Overhead account contained the following data:
Manufacturing Overhead
Actual
477,400
15,400
Applied
462,000
Management would like to determine the cause of the €15,400 underapplied overhead.
Required:
1. Compute the predetermined overhead rate. Break the rate down into variable and fixed cost elements.
2. Show how the €462,000 Applied figure in the Manufacturing Overhead account was computed.
3. Analyze the €15,400 underapplied overhead in terms of the variable overhead rate and efficiency variances and
the fixed overhead budget and volume variances.
4. Explain the meaning of each variance that you computed in (3) above.
PROBLEM 9A-11B Applying Overhead; Overhead Variances (LO1, LO4, LO5)
CHECK FIGURE
(2) Standard cost: $74.00
(4) Volume variance: $40,000 F
Misty Company manufactures a single product that requires a great deal of hand labor. Overhead cost is applied on
the basis of standard direct labor-hours. The company’s condensed flexible budget for manufacturing overhead is
given below:
Cost Formula
(per direct
Overhead Costs
labor-hour)
Variable manufacturing overhead costs ..
$3.00
Fixed manufacturing overhead costs .......
Total manufacturing overhead cost .........
Direct Labor-Hours
20,000
30,000
40,000
$ 60,000
$ 90,000
$120,000
300,000
300,000
300,000
$360,000
$390,000
$420,000
The company’s product requires 4.0 pounds of material that has a standard cost of $6.00 per pound and 2.0
hours of direct labor time that has a standard rate of $12.00 per hour.
The company planned to operate at a denominator activity level of 30,000 direct labor-hours and to produce
15,000 units of product during the most recent year. Actual activity and costs for the year were as follows:
Number of units produced ................................................ 17,000
Actual direct labor-hours worked ..................................... 35,000
Actual variable manufacturing overhead cost incurred .... $101,500
Actual fixed manufacturing overhead cost incurred ........ $306,500
Required:
1. Compute the predetermined overhead rate for the year. Break the rate down into variable and fixed elements.
2. Prepare a standard cost card for the company’s product; show the details for all manufacturing costs on your
standard cost card.
3. Do the following:
a. Compute the standard direct labor-hours allowed for the year’s production
b. Complete the following Manufacturing Overhead T-account for the year:
Manufacturing Overhead
?
?
?
?
4. Determine the reason for any under- or overapplied overhead for the year by computing the variable overhead
spending and efficiency variances and the fixed overhead budget and volume variances.
5. Suppose the company had chosen 35,000 direct labor-hours as the denominator activity rather than 30,000
hours. State which, if any, of the variances computed in (4) above would have changed, and explain how the
variance(s) would have changed. No computations are necessary.
Chapter 9 Appendix B Problems
PROBLEM 9B-3B Comprehensive Variance Analysis; Journal Entries (LO2, LO3, LO4, LO6)
CHECK FIGURE
(2a) Labor rate variance: $2,250 U
(3) Variable overhead efficiency variance: $2,100 F
First Down Products, Inc., produces a broad line of sports equipment and uses a standard cost system for control
purposes. Last year the company produced 7,500 varsity footballs. The standard costs associated with this football,
along with the actual costs incurred last year, are given below (per football):
Standard
Cost
Actual
Cost
Direct materials:
Standard: 3.9 feet at $5.00 per foot .....................................................................................
$19.50
Actual: 4.2 feet at $4.80 per foot .........................................................................................
$20.16
Direct labor:
Standard: 1.1 hours at $7.50 per hour ..................................................................................
8.25
Actual: 1.0 hour at $7.80 per hour .......................................................................................
7.80
Variable manufacturing overhead:
Standard: 1.1 hours at $2.80 per hour ..................................................................................
3.08
Actual: 1.0 hour at $3.00 per hour .......................................................................................
3.00
Total cost per football ..........................................................................................................
$30.83
$30.96
The president was elated when he saw that actual costs exceeded standard costs by only $0.13 per football. He
stated, “I was afraid that our unit cost might get out of hand when we gave out those raises last year in order to
stimulate output. But it’s obvious our costs are well under control.”
There was no inventory of materials on hand to start the year. During the year, 31,500 feet of materials were
purchased and used in production.
Required:
1. For direct materials:
a. Compute the price and quantity variances for the year.
b. Prepare journal entries to record all activity relating to direct materials for the year.
2. For direct labor:
a. Compute the rate and efficiency variances.
b. Prepare a journal entry to record the incurrence of direct labor cost for the year.
3. Compute the variable overhead rate and efficiency variances.
4. Was the president correct in his statement that “our costs are well under control”? Explain.
5. State possible causes of each variance that you have computed.
PROBLEM 9B-4B Comprehensive Variance Analysis with Incomplete Data; Journal Entries (LO2,
LO3, LO4, LO6)
CHECK FIGURE
(1a) Materials price variance: $4,620 F
(3) Variable overhead rate variance: $1,120 F
Elm Products, Ltd., manufactures a super-strong hockey stick. The standard cost of one hockey stick is:
Standard
Quantity
Standard Price
Standard
or Hours
or Rate
Cost
Direct materials ....................................................................................................................
? feet
$3.20 per foot
$ ?
Direct labor ..........................................................................................................................
0.5 hours
? per hour
?
Variable manufacturing overhead ........................................................................................
? hours
$2.00 per hour
?
Total standard cost ...............................................................................................................
$20.40
Last year, 10,000 hockey sticks were produced and sold. Selected cost data relating to last year’s operations follow:
Dr.
Cr.
Accounts payable—direct materials purchased (46,200 feet) ..............................................
$143,220
Wages payable (? hours) ......................................................................................................
$50,400 *
Work in process—direct materials .......................................................................................
$144,000
Direct labor rate variance .....................................................................................................
$5,600
Variable overhead efficiency variance .................................................................................
$1,200
*Relates to the actual direct labor cost for the year.
The following additional information is available for last year’s operations:
a. No materials were on hand at the start of last year. Some of the materials purchased during the year were still on
hand in the warehouse at the end of the year.
b. The variable manufacturing overhead rate is based on direct labor-hours. Total actual variable manufacturing
overhead cost for last year was $10,080.
c. Actual direct materials usage for last year exceeded the standard by 0.1 feet per stick.
Required:
1. For direct materials:
a. Compute the price and quantity variances for last year.
b. Prepare journal entries to record all activities relating to direct materials for last year.
2. For direct labor:
a. Using the rate variance given above, calculate the standard hourly wage rate and compute the efficiency
variance for last year.
b. Prepare a journal entry to record activity relating to direct labor for last year.
3. Compute the variable overhead rate variance for last year and verify the variable overhead efficiency variance
given above.
4. State possible causes of each variance that you have computed.
5. Prepare a standard cost card for one hockey stick.