Just Part 5

Basic Variance Analysis, Revision of Standards, 9-16 Journal Entries L01, LO2, L03, L04 Nosemer Company produces engine parts for large motors. The company uses a standard cost system for production costing and control. The standard cost sheet for one of its higher volume products (a valve), is as follows: $20.00 14.70 Direct materials (5 lbs.$4.00) Direct labor (1.4 hrs$10.50) Variable overhead (1.4 hrs. S6.00) Fixed overhead (1.4 hrs.S3.00) During the year, Nosemer experienced the following activity relative to the produc- tion a. Production of valves totaled 25,000 units. b. A total of 130,000 pounds of direct materials was purchased at S3.70 per pound There were 10,000 pounds of direct materials in beginning inventory (carried at $4 per pound). There was no ending inventory c. Chapter 9 Standard Costing: A Functional-Based Control Approach d. The company used 36,500 direct labor hours at a total cost of S392,375 e. Actual fixed overhead totaled $95,000 f. Actual variable overhead totaled $210,000 Nosemer produces all of its valves in a single plant. Normal activity is 22,500 units per year. Standard overhead rates are computed based on normal activity measured in standard direct labor hours. 1. Compute the direct materials price and usage variances 2. Compute the direct labor rate and efficiency variances. 3. Compute overhead variances using a two-variance analysis. 4. Compute overhead variances using a four-variance analysis. 5. Assume that the purchasing agent for the valve plant purchased a lower-quality direct material from a new supplier. Would you recommend that the company con- tinue to use this cheaper direct material? If so, what standards would likely need revision to reflect this decision? Assume that the end product's quality is not signifi- 6. Prepare all possible journal entries (assuming a four-variance analysis of overhead