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Chapter 23: Q7SE (page 1307)

Martin, Inc. manufactures lead crystal glasses. The standard direct labor time is 0.5 hours per glass, at a cost of \(18 per hour. The actual results for one month’s production of 6,500 glasses were 0.2 hours per glass, at a cost of \)11 per hour. Calculate the direct labor cost variance and the direct labor efficiency variance.

Short Answer

Expert verified

The direct labor cost variance of the company is $63,700(F)

The direct labor efficiency variance of the company is $35,100(F).

Step by step solution

01

Meaning of Variances

Cost variances refer to the difference between the actual cost incurred and the budgeted costs.

02

Computation of the direct labor cost variance-

Direct material cost variance=Actual cost−Standardcost×Actual quantity=$11−$18×6500×1.4=$63,700 F

03

Computation of the direct labor efficiency variance-

Direct material efficiency variance=Actual quantity−Standard quantity×Standard cost=6500×0.2−6500×0.5×$18=1300−3250×18=$35,100 F

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Most popular questions from this chapter

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?

Briefly describe how journal entries differ in a standard cost system.

Matching terms

Match each term to the correct definition.

Terms Definitions

a. Flexible budget

b. Flexible budget variance

c. Sales volume variance

d. Static budget

e. Variance

1. A summarized budget for several levels of volume thatseparates variable costs from fixed costs.

2. A budget prepared for only one level of sales.

3. The difference between an actual amount and thebudgeted amount.

4. The difference arising because the company actuallyearned more or less revenue, or incurred more or lesscost, than expected for the actual level of output.

5. The difference arising only because the number ofunits actually sold differs from the static budget units.

Question:Give the general formulas for determining cost and efficiency variances.

Question:Garland Company expects to sell 600 wreaths in December 2018, but wants to plan for 100 more and 100 less than expected. The wreaths sell for \(5.00 each and have variable costs of \)2.00 each. Fixed costs are expected to be $500 for the month. Prepare a flexible budget for 500, 600, and 700 wreaths.
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