Clothing manufactures embroidered jackets. The company uses a standard cost system to control manufacturing costs. The following data represent the standard unit cost of a jacket:

Direct materials (			3.0	sq. ft x		$4.10		per sq. ft.). . . .		$12.30
Direct labor		(	2.0	hours x		$9.30		per hour). . . . .		18.60
Manufacturing overhead:
Variable	(	2.0	hours x		$0.66		per hour). . . . . . . . . .		$1.32
Fixed	(	2.0	hours x		$2.10		per hour). . . . . . . . . .		4.20	5.52
Total standard cost per jacket. . . . . . . . . . . . . . . . . . . . . . . . . .										$36.42

Fixed overhead in total was budgeted to be $62,400 for each month.

Actual data for November of the current year include the following:

a.	Actual production was 13,700 jackets.
b.	Actual direct materials used was 2.60 square feet per jacket at an actual cost of $4.20 per square foot. (Assume the direct materials purchased is the same as the direct materials used.)
c.	Actual direct labor usage of 25,200 hours for a total cost of $239,400.
d.	Actual fixed overhead cost was $53,634, while actual variable overhead cost was $21,420.

Requirement 1. Compute the price and quantity variances for direct materials. (Enter the variances as positive numbers. Enter currency amounts to the nearest cent and your answers to the nearest whole dollar. Label the variances as favorable (F) or unfavorable (U). Abbreviations used: DM = Direct materials.)

Begin by determining the formula for the price variance, then compute the price variance for direct materials.

Actual quantity purchased

x (

Actual price

-

Standard price

)

=

DM price variance

x (

-

)

=

Now determine the formula for the quantity variance and compute the quantity variance for direct materials.

Standard price

x (

Actual quantity used

-

Standard quantity allowed

)

=

DM quantity variance

x (

-

)

=

Requirement 2. Compute the rate and efficiency variances for direct labor. (Enter the variances as positive numbers. Enter currency amounts to the nearest cent and your answers to the nearest whole dollar. Label the variances as favorable (F) or unfavorable (U). Abbreviations used: DL = Direct labor.)

Determine the formula for the rate variance, then compute the rate variance for direct labor.

Actual hours

x (

Actual rate

-

Standard rate

)

=

DL rate variance

x (

-

)

=

Determine the formula for the efficiency variance, then compute the efficiency variance for direct labor.

Standard rate

x (

Actual hours

-

Standard rate

)

=

DL efficiency variance

x (

-

)

=

Requirement 3. Compute the rate and efficiency variances for variable overhead. (Enter the variances as positive numbers. Enter currency amounts to the nearest cent and your answers to the nearest whole dollar. Label the variances as favorable (F) or unfavorable (U).)

Determine the formula for the rate variance, then compute the variable manufacturing overhead rate variance.

Variable overhead

Actual hours

x (

Actual rate

-

Standard rate

)

=

rate variance

x (

-

)

=

Determine the formula for the efficiency variance, then compute the variable overhead efficiency variance.

Variable overhead

Standard rate

x (

Actual hours

-

Standard hours allowed

)

=

efficiency variance

x (

-

)

=

Requirement 4. Compute the fixed overhead budget variance and the fixed overhead volume variance. (Enter the variances as positive numbers. Label the variances as favorable (F) or unfavorable (U). Abbreviations used: MOH = Manufacturing overhead)

Determine the formula for the fixed overhead budget variance, then compute the budget variance for fixed overhead.

Fixed MOH

Actual fixed overhead

-

Budgeted fixed overhead

=

budget variance

-

=

Determine the formula for the fixed overhead volume variance, then compute the volume variance for fixed overhead.

Fixed MOH

-

Budgeted fixed overhead

=

volume variance

-

=

Requirement 5. Company management intentionally purchased superior materials for November production. How did this decision affect the other cost variances? Overall, was the decision wise? Explain.

The favorable

variances more than offset the unfavorable

efficiency, budget, and fixed volume

price, rate, and fixed volume

price, rate, and quantity

quantity, rate, and budget

variances. If the superior materials purchased for the November production decreased materials and labor usage, then management's decision was

unwise.

wise.

Requirement 6. Journalize the usage of direct materials and the assignment of direct labor, including the related variances. (Record debits first, then credits. Exclude explanations from any journal entries.)

First, journalize the purchase of direct materials, including the related variance.

Journal Entry

Accounts

Debit

Credit

Journalize the usage of direct materials, including the related variance.

Journal Entry
		Accounts	Debit	Credit

Journalize the direct labor costs, including the related variances.(Record both direct labor variances by preparing a single compound entry.)

Journal Entry
Date		Accounts	Debit	Credit

Choose from any list or enter any number in the input fields and then continue to the next question.