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Horngren'S Financial And Managerial Accounting
Found in: Page 1318

Short Answer

Headset manufactures headphone cases. During September 2018, the company produced 106,000 cases and recorded the following cost data:

Standard Cost Information

Quantity

Cost

Direct Materials

2 parts

$ 0.16 per part

Direct Labor

0.02 hours

8.00 per hour

Variable Manufacturing Overhead

0.02 hours

11.00 per hour

Fixed Manufacturing Overhead ($30,720 for static budget volume of 96,000 units and 1,920 hours, or $16 per hour)

Actual Information

Direct Materials (209,000 parts @ $0.21 per part) $ 43,890

Direct Labor(1,620 hours @ $8.10 per hour) 13,122

Variable Manufacturing Overhead 9,000

Fixed Manufacturing Overhead 30,000

Requirements

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

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

3. Headset’s management used better­quality materials during September. Discuss the trade­off between the two direct material variances.

1. The direct material cost variance is $10,450 (U).

The direct material efficiency variance is $480(F)

The labor cost variance is $160(U).

The labor efficiency variance is $4,000(F).

2. The variable overhead cost variance is $8,820 (F).

The variable overhead efficiency variance is $6,490(F).

The fixed overhead cost variance is $720(F).

The fixed overhead volume variance is $4,800(F).

3. The sacrifice of the management on acquiring a better quality of materials with a high cost allowed for abetter utilization of the materials.

See the step by step solution

Step by Step Solution

Step 1: Given Information:

  • Actual cost (AC) is $0.21.
  • Standard cost (SC) is $0.16.
  • Actual quantity(AQ) is 209,000.
  • Standard Quantity (SQ)=106,000 x 2 = 212,000.
  • Actual labour cost (AC) is $8.10.
  • Standard labour cost (SC) is $8.
  • Actual labour hours (AH) is 1,620.
  • Standard labour hours (SH) = 106,000 x 0.02 = 2,120.

Step 2: (1) Computing the cost and efficiency variances for direct materials and direct labor

Calculate the direct material cost variance:

Calculate the direct material efficiency variance:

Calculate the direct labor cost variance:

Calculate the labor efficiency variances:

Step 3: (2) Computing the variable overhead cost and efficiency variances and the fixed overhead cost and volume variances

Compute the variable overhead cost variance:

Compute variable overhead efficiency variance:

Calculate the fixed overhead cost variance:

Compute for the allocated fixed overhead:

Calculate the fixed overhead volume variance:

Step 4: (3) Discuss the trade-off between the two direct material variances

A correlation exists between the direct materials efficiency variance and the direct materials cost variance. Contrary variations may occur in the purchasing department and the manufacturing department sectors. Anunfavourable direct materials cost variance resultarises because of higher-quality materials at a higher actual cost,which helps in improving the direct materials efficiency variance.

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