PR 10-47 (Algo) Comprehensive Problem on Variance Analysis (LO 10-1, 10-3, 10-6)

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Springsteen Company manufactures guitars. The company uses a standard, job-order cost-accounting system in two production departments. In the Construction Department, the wooden guitars are built by highly skilled craftsmen and coated with several layers of lacquer. Then the units are transferred to the Finishing Department, where the bridge of the guitar is attached and the strings are installed. The guitars also are tuned and inspected in the Finishing Department. The diagram below depicts the production process.

Each finished guitar contains seven pounds of veneered wood. In addition, one pound of wood is typically wasted in the production process. The veneered wood used in the guitars has a standard price of $12 per pound. The other parts needed to complete each guitar, such as the bridge and strings, cost $15 per guitar. The labor standards for Springsteens two production departments are as follows:

Construction Department: 6 hours of direct labor at $20 per hour

Finishing Department: 3 hours of direct labor at $15 per hour

The following pertains to the month of July.

1. There were no beginning or ending work-in-process inventories in either production department.
2. There was no beginning finished-goods inventory.
3. Actual production was 544 guitars, and 344 guitars were sold on account for $400 each.
4. The company purchased 6,550 pounds of veneered wood at a price of $12.50 per pound.
5. Actual usage of veneered wood was 5,050 pounds of the wood purchased during July.
6. Enough parts (bridges and strings) to finish 644 guitars were purchased at a cost of $9,660.
7. The Construction Department used 3,125 direct-labor hours. The total direct-labor cost in the Construction Department was $59,375.
8. The Finishing Department used 1,702 direct-labor hours. The total direct-labor cost in that department was $27,232.
9. There were no direct-material variances in the Finishing Department.

3. Complete the following cost variance report for July. Springsteen Company investigates all variances greater than $5,000 or 5%. (Use Exhibit 105.)

Note: Indicate the effect of each variance by selecting "Favorable" or "Unfavorable". Select "None" and enter "0" for no effect (i.e., zero variance). Round "Percentage of Standard Cost" to 2 decimal places.

\begin{tabular}{|c|c|c|c|c|c|c|c|c|} \hline \multicolumn{9}{|c|}{ SPRINGSTEEN COMPANY } \\ \hline \multicolumn{9}{|c|}{ Cost Variance Report } \\ \hline \multicolumn{9}{|c|}{ For the Month of July } \\ \hline & \multicolumn{4}{|c|}{ Construction Department } & \multicolumn{4}{|c|}{ Finishing Department } \\ \hline & \multicolumn{2}{|c|}{ Amount } & \begin{tabular}{l} Percentage of \\ Standard Cost \end{tabular} & \begin{tabular}{c} Variance \\ Investigation \\ Required \end{tabular} & Amount & \multicolumn{2}{|l|}{\begin{tabular}{l} Percentage of \\ Standard Cost \end{tabular}} & \begin{tabular}{c} Variance \\ Investigation \\ Required \\ \end{tabular} \\ \hline Standard cost, given actual output & 12 & & & & & & & \\ \hline Direct-material quantity variance & & & % & & & & % & \\ \hline Direct-material purchase price variance & 3,275 & & % & & & & % & \\ \hline \multicolumn{9}{|l|}{ Direct labor: } \\ \hline \multicolumn{9}{|l|}{ Standard cost, given actual output } \\ \hline Direct-labor rate variance & & & % & & & & % & \\ \hline Direct-labor efficiency variance & & & % & & & & % & \\ \hline \end{tabular}