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Chapter 23: Q19E (page 1311)

Matthews Fender, which uses a standard cost system, manufactured 20,000 boat fenders during 2018, using 143,000 square feet of extruded vinyl purchased at \(1.30 per square foot. Production required 400 direct labor hours that cost \)16.00 per hour. The direct materials standard was seven square feet of vinyl per fender, at a standard cost of \(1.35 per square foot. The labor standard was 0.028 direct labor hour per fender, at a standard cost of \)15.00 per hour.

Compute the cost and efficiency variances for direct materials and direct labor. Does the pattern of variances suggest Matthews Fender’s managers have been making tradeoffs? Explain.

Short Answer

Expert verified

The Material cost variance is $7,150 F and the material efficiency variance is $4,050 U. The Labor cost variance is $3,850 F and the labor efficiency variance is $3,000 F

The production department is going good, but labor is managed properly.

Step by step solution

01

Computation of the Material Variance

MaterialCostVariance=SQforAO×SP-AQ×AP=143,000×1.30-143,000×1.35=$7,150F

MaterialEfficiencyVariance=SQforAO-AQ×SP=143,000-20,000×7×1.35=$4,050U

02

Computation of the Labor Variance

LaborCostVariance=SHforAO×SR-AH×AR=400×16-400×15=$400U

LaborEfficiencyVariance=SHforAO-AH×SR=400-2,000×0.028×15=$2,400F

03

Trade-offs in Variances made by managers

The purchase manager works very efficiently as he has done good work by acquiring the material at a cost lower than the standard cost.

The production manager was inefficient in the consumption of materials purchased by the purchase manager. But the manager was successful in maintaining the efficiency of labor.

The human resource manager failed and could not appoint labor at a standard cost.

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Most popular questions from this chapter

List the eight product variances and the manager most likely responsible for each.

Review your results from Problem P23-­28A. Moss’s standard and actual sales price per mug is $3. Prepare the standard cost income statement for July 2018.

Preparing a standard cost income statement Review your results from Problem P23­33B.

Middleton’s actual and standard sales price per mug is $5. Prepare the standard cost income statement for July 2018.

Murphy Company managers received the following incomplete performance report:

Units Actual Results Flexible Budget Variance Static Budget Flexible Budget Sales Volume Variance Sales Revenue Contribution Margin Fixed Expenses Operating Income 35,000 (a) (b) 5,000 F \( 29,000 \) 14,000 105,000 0 \( 219,000 \) 27,000 F 85,000 13,000 MURPHY COMPANY Flexible Budget Performance Report For the Year Ended July 31, 2018 134,000 14,000 35,000 \( 35,000 100,000 \) 219,000 84,000 135,000 (c) (d) (e) (f) (h) (g) (i) (j) (k) (l)

Complete the performance report. Identify the employee group that may deserve praise and the group that may be subject to criticism. Give your reasoning.

Computing and journalizing standard cost variances

Middleton manufactures coffee mugs that it sells to other companies for customizing with their own logos. Middleton prepares flexible budgets and uses a standard cost system to control manufacturing costs. The standard unit cost of a coffee mug is based on static budget volume of 59,800 coffee mugs per month:

Direct Materials (0.2 lbs. @ \(0.25 per lb.) \) 0.05

Direct Labor (3 minutes @ \(0.14 per minute) 0.42

Manufacturing Overhead:

Variable (3 minutes @ \)0.06 per minute) \( 0.18

Fixed (3 minutes @ \)0.13 per minute) 0.39 0.57

Total Cost per Coffee Mug \( 1.04

Actual cost and production information for July 2018 follows:

a. There were no beginning or ending inventory balances. All expenditures were on account.

b. Actual production and sales were 62,500 coffee mugs.

c. Actual direct materials usage was 11,000 lbs. at an actual cost of \)0.17 per lb.

d. Actual direct labor usage of 197,000 minutes at a cost of \(33,490.

e. Actual overhead cost was \)10,835 variable and \(29,965 fixed.

f. Selling and administrative costs were \)130,000.

Requirements

1. Compute the cost and efficiency variances for direct materials and direct labor.

2. Journalize the purchase and usage of direct materials and the assignment of direct

labor, including the related variances.

3. For manufacturing overhead, compute the variable overhead cost and efficiency variances and the fixed overhead cost and volume variances.

4. Journalize the actual manufacturing overhead and the allocated manufacturing overhead. Journalize the movement of all production from Work in Process Inventory. Journalize the adjusting of the Manufacturing Overhead account.

5. Middleton intentionally hired more highly skilled workers during July. How did this decision affect the cost variances? Overall, was the decision wise?
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