Basic Variance Analysis Revision of Standards 916 Journal En

Basic Variance Analysis, Revision of Standards, 9-16 Journal Entries LO 1 , l2, LO3, 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 Direct materials (5 lbs. S4.00) Direct labor (1.4 hrs.$10.50) Variable overhead (1.4 hrs.S6.00) Fixed overhead (1.4 hrs.S3.00) $20.00 14.70 8.40 4.20 $47.30 Standard unit cost During the year, Nosemer experienced the following activity relative to the produc tion of valves: a. Production of valves totaled 25,000 units. b. A total of 130,000 pounds of direct materials was purchased at $3.70 per pound c. There were 10,000 pounds of direct materials in beginning inventory (carried at $4 er pound). There was no ending inventory Chapter 9 Standard Costing: A Functional-Based Control Approach 331 d. The company used 36,500 direct labor hours at a total cost of $392,375 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.

Solution

Nosemer Company Production 25000 Units Expected Production 22500 Units Direct Material Direct Labor Manufacturing Overhead(Variable) Manufacturing Overhead(Fixed) Standard Quantity 5Lbs 1.4 Hours 1.4 Hours 1.4hours Standard Price $4 lbs $10.5 hours $6hours $3 Unit Standard cost $20 $14.70 $8.4 4.2 Direct Material Purchase Price 130000 Pounds   $481,000 Direct Labour 36500 DLH $392,375 Actual Fixed Manufacturing Overhead $95,000 Actual Material Price Per Pound=($231000/84000) $                   3.70 Actual Labor cost per hours=($512400/61000) 10.75 Actual Variable Manufacturing Overhead Per hours=($210000/36500) 5.75 1) Direct material price variance Actual Material used( Standard Price-Actual Price) Direct material price variance=130000*($4-$3.70)= $         39,000.00 (F) Direct material Quantity variance=((5*25000)-130000))*$4 (Standard Quantity-Actual Quantity)standard Price $      (20,000.00) (U) Total material cost Variance=($39000-20000) Direct material Price variance+ Direct material Quantity variance $         19,000.00 (F) 2) Direct labour rate variance=36500*($10.5-$10.75) Actual hours(Standard rate-Actual Rate) $         (9,125.00) (U) Direct Labour efficiency variance=((1.4*25000)-36500)*$10.5 (Standard Hours-Actual Hours)*Standard Rate $      (15,750.00) (F) Total direct labour cost variance=(-$9125-$15750) Direct labour rate variance+ Direct labour efficiency variance $      (24,875.00) (U) 3) The variable overhead controllable variance Budgeted Variable Overhead=(production units*hours required per unit*Variable cost per hours)=(25000*1.4*8.4) $      294,000.00 Actual Variable Overhead $      210,000.00 $         84,000.00 (F) Fixed Factory overhead volume variance Budgeted Fixed Overhead=(production units*hours required per unit*Fixed cost per hours)=(25000*1.4*$4.2) $      147,000.00 Actual Fixed Overhead $         95,000.00 $         52,000.00 (F) Total Factory overhead cost variance $      136,000.00 (F)