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Chapter 23: Q12RQ (page 1305)
Question:List the direct materials variances, and briefly describe each.
Answer
The direct material variances can be in the form of direct material cost variance and direct material efficiency variance
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Journalizing materials entries
The following direct materials variance analysis was performed for Moore.
Requirements
1. Record Moore鈥檚 direct materials journal entries. Assume purchases were made on the account.
2. Explain what management will do with this variance information
Drew Castello, general manager of Sunflower Manufacturing, was frustrated. He wanted the budgeted results, and his staff was not getting them to him fast enough. Drew decided to pay a visit to the accounting office, where Jeff Hollingsworth was supposed to be working on the reports. Jeff had recently been hired to update the accounting system and speed up the reporting process.
鈥淲hat鈥檚 taking so long?鈥� Drew asked. 鈥淲hen am I going to get the variance reports?鈥� Jeff sighed and attempted to explain the problem. 鈥淪ome of the variances appear to be way off. We either have a serious problem in production, or there is an error in the spreadsheet. I want to recheck the spreadsheet before I distribute the report.鈥� Drew pulled up a chair, and the two men went through the spreadsheet together. The formulas in the spreadsheet were correct and showed a large unfavorable direct labor efficiency variance. It was time for Drew and Jeff to do some investigating.
After looking at the time records, Jeff pointed out that it was unusual that every employee in the production area recorded exactly eight hours each day in direct labor. Did they not take breaks? Was no one ever five minutes late getting back from lunch? What about clean颅up time between jobs or at the end of the day?
Drew began to observe the production laborers and noticed several disturbing items. One employee was routinely late for work, but his time card always showed him clocked in on time. Another employee took 10颅 to 15颅minute breaks every hour, averaging about 1 hours each day, but still reported eight hours of direct labor each day. Yet another employee often took an extra 30 minutes for lunch, but his time card showed him clocked in on time. No one in the production area ever reported any 鈥渄own time鈥� when they were not working on a specific job, even though they all took breaks and completed other tasks such as doing clean颅up and attending department meetings.
Requirements
1. How might the observed behaviors cause an unfavorable direct labor efficiency variance?
2. How might an employee鈥檚 time card show the employee on the job and working when the team member was not present?
3. Why would the employees鈥� activities be considered fraudulent?
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.
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.
The following direct labor variance analysis was performed for Morris.
AC 脳 AQ \(19,800 SC 脳 SQ \)14.00 per DLHr 脳 1,350 DLHr \(18,900 SC 脳 AQ \)14.00 per DLHr 脳 1,800 DLHr \(11.00 per DLHr 脳 1,800 DLHr \)25,200 Efficiency Variance Cost Variance \(5,400 F \)6,300 U
Requirements
1. Record Morris鈥檚 direct labor journal entry (use Wages Payable).
2. Explain what management will do with this variance information.
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