Cost and production data for Biloxi Beverages, Inc., are presented as follows.

Required:
1. Calculate net variances for materials, labor, and factory overhead.
2. a. Calculate specific materials and labor variances by department, using the diagram format in Figure.
b. Comment on the possible causes for each of the variances that you computed.
3. Make all journal entries to record production costs in Work in Process and Finished Goods.
4. Prove balances of Work in Process for both departments.
5. Prove that all costs have been accounted for. Note: Assume that materials, labor, and overhead are added evenly throughout the process.
6. Assume that 4,000 units were sold at $40 each.
a. Calculate the gross margin based on standard cost.
b. Calculate the gross margin based on actual cost.
c. Why does the gross margin at actual cost differ from the gross margin at standard cost.
7. As the plant controller, you present the variance report in Item 1 above to Pat Crowley, the plant manager. After reading it, Pat states: ‘‘If we present this performance report to corporate with that large unfavorable labor variance in Blending, nobody in the plant will receive a bonus. Those standard hours of 5,500 are way too tight for this production process. Fifty-eight hundred hours would be more reasonable, and that would result in a favorable labor efficiency variance that would more than offset the unfavorable labor rate variance. Please redo the variance calculations using 5,800 hours as the standard.'' You object, but Pat ends the conversation with ‘‘That is an order.''
a. What standards of ethical professional practice would be violated if you adhered to Pat's order?
b. How would you attempt to resolve this ethicalconflict?

Transcribed Image Text:

Standard Cost Summary Mixing Blending Total Materials 4 lb s0.50 1 gal$1.00 s 2 s 3 Labor: 1 hrS8.00 1 hr@ $10.00 Factory overhead: 10 18 Per unit S11 S13 $24 Production Report Beginning units in process.. .. Units finished and transferred Ending units in process Stage of completion Mixing None 6,000 2,000 Blending None 5,000 1,000 1/2 1/2 Cost Data Mixing Blending Direct materials: 30,000 lb S0.52 5,500 gal 50.95... $15,600 S 5225 Direct labor 6,800 hr $8.00 5,600 hr $10.20 54,400 57,120 Factory overhead: Indirect materials Indirect labor Other . S 500 2,000 4,500 $1,000 5,000 5,000 7,000 11,000 $ 73 345 $77,000