MISSOURI CORP.

. manufactures widgets. The materials used for the widgets are inexpensive, but the process is very labor intensive. The supervisor decided to use cheaper labor this period to see whether costs could be reduced. You have been asked to prepare a report about how effective operations had been during the month of October. The following standards have been established in connection with the production of one widget (standard costs per unit):

Overhead (fixed and variable) is applied on the basis of direct labor hours. Estimated production for the month was 8,000 widgets, or 40,000 labor hours.

During October, the company actually produced 7,800 widgets and the records showed the following:

The companys policy is to record direct materials price variances at the time the materials are purchased.

REQUIRED:

DIRECT MATERIALS

1. Assume the company uses normal costing. Record the journal entries for direct materials (T-accounts preferred):

A. Record the actual purchase of materials

B. Record the usage of materials

2. Prepare a simple and meaningful performance report (variance report) for direct materials AND direct labor showing: (A picture would be just fine)

A. The total budget variance;

B. The flexible budget variance (Standard Cost Variance)

C. The volume variance

3. NOW ASSUME that the company has chosen to use a standard costing system to record all inventory at standard, show the entries needed (written AND T-accounts) as follows:

A. Record the actual purchase of materials on account and the price variance.

B. Record the usage of materials during the period and the usage variance.

C. Dispose of the price and usage variances.

4. Prepare a simple and meaningful performance report (variance report) for direct materials which explains the flexible budget variance (standard cost variance) above. (A picture would be just fine)

Cost per unit Direct materials Direct labor Factory overhead 3 Ibs. @ 5 hrs @ $12 per lb $15 per hr $36 $75 $3 per direct labor hr $4 per direct labor hr ($20 per unit) $15 $20 $146 Variable