Computing Cost Variances
Per unit standard costs of the entertainment center, assuming a “normal” volume of 1,000 units per month are as follows:
Direct materials, 100 board-feet of wood at $1.30 per foot…………….$130.00
Direct labor, 5 hours at $8.00 per hour………………………………………… 40.00
Manufacturing overhead (applied at $22 per unit)
Fixed ($15.00 divied 1,000 units of normal production)………………..$15.00
Variable…………………………………………………………………………………. 7.00 22.00
Total standard unit cost………………………………………………………………………….$192.00
During July, 800 entertainment centers were scheduled and produced at the following actual unit costs:
Direct materials, 110 feet at $1.20 per foot…………………………………$132.00
Direct labor, 5 1/2 hours at $7.80 per hour………………………………….. 42.00
Manufacturing overhead, $18,480 divided 800 units……………………….23.10
Total actual unit cost………………………………………………………………..$198.00
TASKS:
A – Compute the following cost variances for the month of July:
1 – Materials price variance
2 – Materials quantity variance
3 – Labor rate variance
4 – Labor efficiency variance
5 – Overhead spending variance
6 – Volume variance
the Work in Process Inventory account and to record cost variancefor July. Use
separate entries for (1) direct materials, (2) direct labor and (3) overhead
costs.
C – Comment on any significant problems or areas of cost
savings revealed by your computation of cost variances. Also comment on any
possible causal relationships between significant favorable and unfavorable
cost variances.
ScholarMatic: Explanation & Answer
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