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Chapter 23: 18E (page 1310)
List the eight product variances and the manager most likely responsible for each.
The purchasing manager looks after the materials cost and the labor cost by the human resource manager. The production manager looks after efficiency variances and variable and fixed overhead variances.
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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颅-in颅-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?
Question:Match the product cost variance with the manager most probably responsible. Some answers may be used more than once. Some answers may not be used.
Variance Manager
19. Variable overhead cost variance
20. Direct materials efficiency variance
21. Direct labor cost variance
22. Fixed overhead cost variance
23. Direct materials cost variance
a. Human resources
b. Purchasing
c. Production
Preparing flexible budgets
Moje, Inc. manufactures travel locks. The budgeted selling price is \(19 per lock, thevariable cost is \)9 per lock, and budgeted fixed costs are $13,000 per month. Prepare aflexible budget for output levels of 4,000 locks and 11,000 locks for the month endedApril 30, 2018.
Martin, Inc. manufactures lead crystal glasses. The standard direct labor time is 0.5 hours per glass, at a cost of \(18 per hour. The actual results for one month鈥檚 production of 6,500 glasses were 0.2 hours per glass, at a cost of \)11 per hour. Calculate the direct labor cost variance and the direct labor efficiency variance.
Cell One Technologies manufactures capacitors for cellular base stations and other communications applications. The company鈥檚 July 2018 flexible budget shows output levels of 6,000, 7,500, and 9,500 units. The static budget was based on expected sales of 7,500 units.
CELL ONE TECHNOLOGIES Flexible Budget For the Month Ended July 31, 2018 |
Budget Amount per Unit |
Units 6,000 7,500 9,500 |
Sales Revenue \(21 \)126,000 \(157,500 \)199,500 |
Variable Expenses 10 60,000 75,000 95,000 |
Contribution Margin 66,000 82,500 104,500 |
Fixed Expenses 55,000 55,000 55,000 |
Operating Income \(11,000 \)27,500 \(49,500 |
The company sold 9,500 units during July, and its actual operating income was as follows:
CELL ONE TECHNOLOGIES Income Statement For the Month Ended July 31, 2018 |
Sales Revenue \)206,500 |
Variable Expenses 100,100 |
Variable Expenses 106,400 |
Fixed Expenses 56,000 |
Operating Income $504,00 |
Requirements
1. Prepare a flexible budget performance report for July.
2. What was the effect on Cell One鈥檚 operating income of selling 2,000 units more than the static budget level of sales?
3. What is Cell One鈥檚 static budget variance for operating income?
4. Explain why the flexible budget performance report provides more useful information to Cell One鈥檚 managers than the simple static budget variance. What insights can Cell One鈥檚 managers draw from this performance report?
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