Springsteen Company manufactures guitars. The company uses a standard, job-order cost accounting system in two production departments. In the Construction Department, the wooden guitars are built by highly skilled craftsmen and coated with several layers of lacquer. Then the units are transferred to the Finishing Department, where the bridge of the guitar is attached and the strings are installed.

The guitars also arc tuned and inspected in the Finishing Department. The diagram below depicts the production process.

Each finished guitar contains seven pounds of veneered wood. In addition, one pound of wood is typically wasted in the production process. The veneered wood used in the guitars has a standard price of $12 per pound. The other parts needed to complete each guitar, such as the bridge and strings, cost $15 per guitar. The labor standards for Springsteen’s two production departments are as follows:

Construction Department: 6 hours of direct labor at $20 per hour

Finishing Department: 3 hours of direct labor at $15 per hour

The following pertains to the month of July.

1. There were no beginning or ending work-in-process inventories in either production department.

2. There was no beginning finished-goods inventory.

3. Actual production was 500 guitars, and 300 guitars were sold on account for $400 each.

4. The company purchased 6,000 pounds of veneered wood at a price of $12.50 per pound.

5. Actual usage of veneered wood was 4,500 pounds.

6. Enough parts (bridges and strings) to finish 600 guitars were purchased at a cost of $9,000.

7. The Construction Department used 2,850 direct-labor hours. The total direct-labor cost in the Construction Department was $54,150.

8. The Finishing Department used 1.570 direct-labor hours. The total direct-labor cost in that department was $25,120.

9. There were no direct-material variances in the Finishing Department,

Required:

1. Prepare a schedule that computes the standard costs of direct material and direct labor in each production department.

2. Prepare three exhibits that compute the July direct-material and direct-labor variances in the Construction Department and the July direct-labor variances in the Finishing Department. (Refer to Exhibits (a) and (b) for guidance.)

 (a)

(b)

3. Prepare a cost variance report fir July similar to that shown in Exhibit (c).

(c)

Transcribed Image Text:

Construction Department Finishing Department (Basic guitar built from veneered wood.) (Bridge and strings attached; guitar tuned and inspected.) Standard Materlal Cost Actual Material Cost Actual Standard Standard Standard Actual Price Actual Quanlity Price Quantity 12,500 purchased $1.42 per pound quantity Price $1.40 pounds X per 10,000 pounds X allowed $1 40 per pound 12,500 pounds x purchased pound $17,750 17.500 $14,000 $250 Unliavorable Direct-materia pxlce variance 10,250 1.40 pound $14,350 $350 Unlawrable Direct-material antityvo Actual outprt x Standard quarsty per unt 2,000 units x 5 pounds per unit-10,000 ps atbeed. Aclual Labor Cost Standard Labor Cost Actual Actual Aclual Standard Rale Standard Standard Rate 20 Hours Rate Hours 980 used × Hours x 980 hours used $21 per hour $20 per our 1,000 hours X alkowed our $20 580 $19,600 $20,000 $980 Untavcrabl $400 Favorablo Direct labor ate vaanca Direct-labor ettlcliency variance $580 Unfavorable Direct-tabor voriance Acbal oututxStandand hours per unt 2000 uns x 5hour per unit-1,000 hours allowed.