Question
Question # 1: (25 Marks) Children Toys, Ltd. produces a toy called the Joy. Overhead is applied to products on the basis of direct labour
Question # 1: (25 Marks)
Children Toys, Ltd. produces a toy called the Joy. Overhead is applied to products on the basis of direct labour hours. The company has recently implemented a standard cost system to help control costs and has established the following standards for the Joy toys:
Direct materials: 6 units per toy at $0.50 per unit
Direct labour: 1.3 hours per toy at $ 8.00 per hour
Variable manufacturing overhead: $4.00 per hour
During July, the company produced 3,000 toys. The fixed overhead expense budget for July was $24,180 with 4030 direct labour hours as the denominator level of activity. Production data for the month on the toys follow:
Direct materials: 25,000 units were purchased at a cost of $0.48 per unit. 5,000 of these units were still in inventory at the end of the month.
Direct Labour : 4,000 direct labour hours were worked at a cost of $36,000.
Variable overhead : Actual cost in July was $ 17,000.
Fixed Overhead : Actual cost in July was $25,000.
Required:
- Prepare variances for the materials(5), labour(4), variable manufacturing overhead(4) and fixed manufacturing overhead variances(4)
- Prepare journal entries only for materials and labour.(8 Marks)
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