Basic Variance Analysis Revision of Standards 916 Journal En

Basic Variance Analysis, Revision of Standards, 9-16 Journal Entries L01, LO2, L03, 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: $20.00 14.70 Direct materials (5 lbs.$4.00) Direct labor (1.4 hrs$10.50) Variable overhead (1.4 hrs. S6.00) Fixed overhead (1.4 hrs.S3.00) During the year, Nosemer experienced the following activity relative to the produc- tion a. Production of valves totaled 25,000 units. b. A total of 130,000 pounds of direct materials was purchased at S3.70 per pound There were 10,000 pounds of direct materials in beginning inventory (carried at $4 per pound). There was no ending inventory c. Chapter 9 Standard Costing: A Functional-Based Control Approach d. The company used 36,500 direct labor hours at a total cost of S392,375 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. 1. Compute the direct materials price and usage variances 2. Compute the direct labor rate and efficiency variances. 3. Compute overhead variances using a two-variance analysis. 4. Compute overhead variances using a four-variance analysis. 5. Assume that the purchasing agent for the valve plant purchased a lower-quality direct material from a new supplier. Would you recommend that the company con- tinue to use this cheaper direct material? If so, what standards would likely need revision to reflect this decision? Assume that the end product\'s quality is not signifi- 6. Prepare all possible journal entries (assuming a four-variance analysis of overhead

Solution

Nosemer Company Requirement 1 Material Standard quanity*Standard price Actual quanity*Standard Price Actual Quantity*Actual price =25000*5*4 =(130000+10000)*4 =130000*3.7+10000*4 500000 560000 521000 Material Usage Variance Material Price Variance =500000-560000 =560000-521000 5100 Unfavourable 39000 Favourable Requirement 2 Labor Standard quanity*Standard rate Actual quanity*Standard rate Actual Quantity*Actual rate =25000*1.4*10.5 =36500*10.5 =392375 367500 383250 392375 Labor efficiency Variance Labor Rate variance =367500-383250 =383250-392375 8060 Unfavorable 9125 Unfavourable Requirement 3 Overhead variance using two way overhead variance analysis Actual factory Overhead(210000+95000) 305000 Buget allowed on standard hours For variable 25000*1.4*6 210000 For Fixed 22500*1.4*3 94500 304500 Budget Variance 500 Unfavourable Volume Variance Budget allowed on standard hours 304500 Standard fixed overhead(25000*1.4*9) 315000 10500 Favourable Total Factory Overhead variance 10000 Favourable Requirement 4 Overhead variance using four variance anaylsis Variable Overhead Actual Variable OH Cost Flexible Budget Standard Cost(VOH applied) Actual Quantity*Actual rate Actual Quantity*Standard rate Standard Quantity*Standard rate 210000 Given =36500/1.4*8.4 =25000*1.4*6 210000 Given 219000 210000 VOH Spending variance VOH Efficiency Variance =219000-210000 =210000-219000 9000 Favourable 9000 Unfavourable Total VOH Variance 0 Fixed Overhead (FOH) Actual Fixed OH Cost Flexible Budget Standard Cost(FOH applied) Actual Quantity*Actual rate Actual Quantity*Standard rate Standard Quantity*Standard rate 95000 Given =36500*3 =25000*4.2 95000 Given 109500 105000 FOH Spending Variance FOH Volume Variance 109500-95000 =105000-109500 14500 Favourable 4500 Unfavourable Total FOH Variance 10000 Favoruable Total Factory Overhead variance 10000 Favoruable Note As per Chegg Polciy, We are supposed to answer maximum of four sub part of question Thank You