Heritage Furniture Co. uses a standard cost system. One of the companys most popular products is an

Heritage Furniture Co. uses a standard cost system. One of the company’s most popular products is an oak entertainment center that looks like an old icebox but houses a television, stereo, or other electronic components. The per-unit standard costs of the entertainment center, assuming a “normal” volume of 1,000 units per month, are as follows:

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, 51⁄2 hours at $7.80 per hour . . . . . . . . . . . . . . . 42.90
Manufacturing overhead, $18,480  800 units . . . . . . . . . . . . 23.10
Total actual unit cost . . . . . . . . . . . . . . . . . . . . . . . . . . . .... $198.00
Instructions
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
b. Prepare journal entries to assign manufacturing costs to the Work in Process Inventory account and to record cost variances for 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 costvariances.

Transcribed Image Text:

Direct materials, 100 board-feet of wood at $1.30 per foot Direct labor, 5 hours at $8.00 per hour Manufacturing overhead (applied at $22 per unit) $130.00 40.00 Fixed ($15,000 ÷ 1,000 units of normal production) Variable $15.00 7.00 . . 22.00 Total standard unit cost $192.00