Question
Manchester Corp. uses a standard cost system. For the most recent fiscal year, the company produced 40,000 units of product. Certain company managers are evaluated
Manchester Corp. uses a standard cost system. For the most recent fiscal year, the company produced 40,000 units of product. Certain company managers are evaluated in part by their performance in relation to standards. To this end, the company separates the following four variances:
Direct materials: Price variance and Quantity (Usage) variance
Direct labour: Rate variance and Efficiency variance
The standard direct materials cost per unit of product is $15. This standard is based on 1.5 (one and one half) kgs of raw material. The standard direct labour cost per unit of product is $30. This standard allows for 2 (two) direct labour hours per unit.
During the past year, the company purchased 40,000 kgs of raw material at a total cost of $600,000 and used 70,000 kgs in production. The company actually paid $1,400,000 in direct labour costs for the year at an average wage rate of $20 per direct labour hour.
Required:
Indicate your response to each of the following questions by circling the
appropriate letter.
- If the above standards were attainable, which variance would probably not have been written-off directly to Cost of Goods Sold?
- Raw Material Usage variance
- Direct labour Efficiency variance
- Raw Material price variance
- Direct labour Rate variance
7. From the above data, the net change in the Raw Material inventory account for the
period would have been:
- $200,000 increase
- $300,000 decrease
- $200,000 increase
- $450,000 decrease
8. From the above data, the total amount charged to the Work - in- Process account for the period would have been:
a. $2,000,000
b. $1,200,000
c. $600,000
d. $1,800,000
9. Assume that there was no opening finished goods inventory. If sales for the period
were 30,000 units, the direct material content (at Standard) of cost of goods sold for
the period would have been:
a. $1,200,000
b. $900,000
c. $600,000
d. $450,000
10. Assume that there was no opening finished goods inventory. If sales for the period
were 30,000 units, the direct labour content of cost of goods sold for the period would have been:
a. $1,200,000
b. $900,000
c. $600,000
d. $450,000
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