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Chapter 23: Q19RQ (page 1305)
Briefly describe how journal entries differ in a standard cost system.
The difference in journal entries are in raw material, WIP inventory, finished goods inventory and variances
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McCarthy Fender, which uses a standard cost system, manufactured 20,000 boat fenders during 2018. The 2018 revenue and cost information for McCarthy follows:
Sales Revenue \( 1,300,000
Cost of Goods Sold (at standard) 196,800
Direct materials cost variance 7,150 F
Direct materials efficiency variance 5,950 U
Direct labor cost variance 400 U
Direct labor efficiency variance 530 F
Variable overhead cost variance 650 U
Variable overhead efficiency variance 360 F
Fixed overhead cost variance 2,350 U
Fixed overhead volume variance 4,410 U
Assume each fender produced was sold for the standard price of \)65, and total selling and administrative costs were $250,000. Prepare a standard cost income statement for 2018 for McCarthy Fender
Question:How does the static budget affect the cost and efficiency variances?
Preparing a flexible budget and performance report
This continues the Piedmont Computer Company situation from Chapter 22. Assume Piedmont Computer Company has created a standard cost card for the PCC model tablet computer, with overhead allocated based on direct labor hours:
Direct materials | \( 300 per tablet |
Direct labor | 3 hours per tablet at \)26 per hour |
Variable overhead | 3 hours per tablet at \(5 per hour |
Fixed overhead | \)54,000 per month |
During the month of September, Piedmont Computer Company incurred the following costs while manufacturing 1,100 PCC model tablets:
Direct material | \(341,000 |
Direct labor | 88,000 |
Variable overhead | 17,600 |
Fixed overhead | 56,320 |
Requirements
1. Prepare a flexible budget for September for 900, 1,000, and 1,100 PCC model tablets. The tablet has a standard sales price of \)675. List variable costs separately.
2. Using 1,000 PCC model tablets for the static budget, prepare a flexible budget performance report for September. Total sales revenue for the month was $767,800. The company sold 1,100 tablets.
3. What insights can the management of Piedmont Computer Company draw from the performance report?
Office Plus sells its main product, ergonomic mouse pads, for \(13 each. Its variable cost is \)5.10 per pad. Fixed costs are \(205,000 per month for volumes up to 65,000 pads. Above 65,000 pads, monthly fixed costs are \)250,000. Prepare a monthly flexible budget for the product, showing sales revenue, variable costs, fixed costs, and operating income for volume levels of 45,000, 55,000, and 75,000 pads.
Computing and journalizing standard cost variances
Moss manufactures coffee mugs that it sells to other companies for customizing with their own logos. Moss 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 material (0.2 lbs. @\(0.25 per lb) | \)0.05 | |
Direct Labor (3 minutes @ \(0.11 per minute) | 0.33 | |
Manufacturing Overhead: | ||
Variable (3 minutes @ \)0.06 per minute) | \(0.18 | |
Fixed (3 minutes @ \)0.13 per minute) | 0.39 | 0.57 |
Total Cost per Coffee Mug | \(0.95 |
Actual cost and production information for July 2018 follows:
a. There were no beginning or ending inventory balances. All expenditures were on account.
b. Actual production and sales were 62,500 coffee mugs.
c. Actual direct materials usage was 11,000 lbs. at an actual cost of \)0.17 per lb.
d. Actual direct labor usage was 197,000 minutes at a total cost of \(25,610.
e. Actual overhead cost was \)10,835 variable and \(29,765 fixed.
f. Selling and administrative costs were \)95,000.
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 costs from Work-in-Process Inventory. Journalize the adjusting of the Manufacturing Overhead account.
5. Moss 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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