exercise 9.21

Investigation of Variances Madison Company uses the following rule to determine whether direct labor efficiency variances ought to be investigated. A direct labor efficiency variance will be investigated anytime the amount exceeds the lesser of $12,000 or 10 percent of the standard labor cost. Reports for the past five weeks provided the following information: Required: Using the rule provided, identify the eases that will be investigated. Suppose that investigation reveals that the cause of an unfavorable direct labor efficiency variance is the use of lower quality direct materials than are usually used. Who is responsible? What corrective action would likely be taken? Suppose that investigation reveals that the cause of a significant favorable direct labor efficiency variance is attributable to a new approach to manufacturing that takes less labor time but causes more direct materials waste. Upon examining the direct materials usage variance, it is discovered to be unfavorable, and it is larger than the favorable direct labor efficiency variance. Who is responsible? What action should be taken? How would your answer change if the unfavorable variance were smaller than the favorable? Overhead Variances, Four-Variance Analysis, Journal Entries Laughlin, Inc., uses standard costing system. The predetermined overhead rates are calculated using practical capacity, Practical capacity for a year is defined as 1,000,000 units required 2000,000 standard direct labor hours. Budgeted overhead for the year is $750,000, of $300,000 is fixed overhead. During the year, 900,000 units were produced using 190,000 direct labor hours. Actual annual overhead costs totaled $800,000, of which $294, 700 is fixed overhead