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Expert-verified Found in: Page 1318 ### Horngren'S Financial And Managerial Accounting

Book edition 6th
Author(s) Tracie L. Miller-Nobles, Brenda L. Mattison
Pages 992 pages
ISBN 9780134486833

# Headset manufactures headphone cases. During September 2018, the company produced 106,000 cases and recorded the following cost data:Standard Cost Information QuantityCostDirect Materials2 parts$0.16 per partDirect Labor0.02 hours8.00 per hourVariable Manufacturing Overhead0.02 hours11.00 per hourFixed Manufacturing Overhead ($30,720 for static budget volume of 96,000 units and 1,920 hours, or $16 per hour)Actual InformationDirect Materials (209,000 parts @$0.21 per part) $43,890Direct Labor(1,620 hours @$8.10 per hour) 13,122Variable Manufacturing Overhead 9,000Fixed Manufacturing Overhead 30,000Requirements 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 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. ### Want to see more solutions like these? 