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 $18.80 $18.86 12.15 11.64 Direct materials: Standard: 4.0 metres at $4.70 per metre Actual: 4.1 metres at $4.60 per metre Direct labour: Standard: 2.7 hours at $4.50 per hour Actual: 2.4 hours at $4.85 per hour Variable manufacturing overhead: Standard: 2.7 hours at $2.50 per hour Actual: 2.4 hours at $2.85 per hour Fixed manufacturing overhead: Standard: 2.7 hours at $4.10 per hour Actual: 2.4 hours at $4.15 per hour Total cost per unit 6.75 6.84 11.07 9.96 $48.77 $47.30 Actual costs: 4,800 units at $47.30 $227,040 Standard costs: 4,800 units at $48.77 234,096 Difference in cost-favourable $ 7,056 During this period, the company produced 4,800 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, 19,680 metres of materials was purchased and used in production. The denominator level of activity for the period was 11,860 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).) Price variance Quantity variance b. Prepare journal entries to record all activity relating to direct materials for the period. View transaction list Journal entry worksheet Record the materials price variance. Note: Enter debits before credits. General Journal Debit Credit Event 1 Record entry View general journal Clear entry 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).) Labour rate variance Labour efficiency variance b. Prepare a journal entry to record the incurrence of direct labour cost for the period. (List debit entries first). View transaction list Journal entry worksheet Record the incurrence of direct labour cost for the period. Note: Enter debits before credits. General Journal Debit Credit Event 1 Record entry View general journal Clear entry 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 $7,056 total cost variance, the company's president stated, It's obvious that our costs are well under control." Do you agree? Yes No
