Haliburton Mills Inc. is a large producer of men's and women's clothing. The company uses standard costs for all of its products. The standard costs and actual costs for a recent period are given below for one of the company's product lines (per unit of product): Standard Actual Cost Cost $ 12.90 $13.77 8.05 7.70 Direct materials: Standard: 3.0 metres at $4.30 per metre Actual: 3.4 metres at $4.05 per metre Direct labour: Standard: 2.3 hours at $3.50 per hour Actual: 2.0 hours at $3.85 per hour Variable manufacturing overhead: Standard: 2.3 hours at $2.10 per hour Actual: 2.0 hours at $2.45 per hour Fixed manufacturing overhead: Standard: 2.3 hours at $3.70 per hour Actual: 2.0 hours at $3.75 per hour Total cost per unit 4.83 4.90 8.51 7.50 $33.87 $34.29 Actual costs: 6,000 units at $33.87 Standard costs: 6,000 units at $34.29 Difference in cost-favourable $203, 220 205,740 $ 2,520 During this period, the company produced 6,000 units of product. A comparison of standard and actual costs for the period on a total cost basis is also given above. There was no inventory of materials on hand to start the period. During the period, 20,400 metres of materials was purchased and used in production. The denominator level of activity for the period was 12,340 hours. Required: 1. For direct materials: a. Compute the price and quantity variances for the period. (Indicate the effect of each variance by selecting "F" for favourable, "U" for unfavourable, and "None" for no effect (i.e., zero variance).) Answer is complete and correct. Price variance $ 5,100F $ Quantity variance (10,320) b. Prepare journal entries to record all activity relating to direct materials for the period. Answer is complete and correct. No Event General Journal Debit Credit A 1 Raw materials 87,720 Materials price variance Accounts payable 5,100 82,620 OOO OOO B 2 Work in process Materials quantity variance Raw materials 77,400 10,320 87,720 b. Prepare journal entries to record all activity relating to direct materials for the period. . Answer is complete and correct. Event Credit No A Debit 87,720 1 General Journal Raw materials Materials price variance Accounts payable 5,100 82,620 B 2 77,400 Work in process Materials quantity variance Raw materials 10,320 87,720 2. For direct labour a. Compute the rate and efficiency variances. (Indicate the effect of variance by selecting "F" for favourable, "U" for unfavourable, and "None" for no effect (i.e., zero variance).) Answer is complete and correct. . Labour rate variance Labour efficiency variance 4,200U 6,300F S b. Prepare a journal entry to record the incurrence of direct labour cost for the period. (List debit entries first). Answer is complete and correct. Debit Credit No 1 Event 1 General Journal Work in process Labour rate variance Labour efficiency variance Wages payable 48,300 4,200 6,300 46,200 3. Compute the variable manufacturing overhead spending and efficiency variances. (Indicate the effect of each variance by selecting "F" for favourable, "U" for unfavourable, and "None" for no effect (i.e., zero variance).) Variable overhead spending variance Variable overhead efficiency variance 4. Compute the fixed overhead budget and volume variances. (Indicate the effect of variance by selecting "F" for favourable, "U" for unfavourable, and "None" for no effect (i.e., zero variance).) Fixed overhead budget variance Fixed overhead volume variance 5. On seeing the $2,520 total cost variance, the company's president stated, "It's obvious that our costs are well under control." Do $. you agree? Yes No
