P23-28A Computing and journalizing standard cost variances Java manfactures coff

Question

P23-28A



Computing and journalizing standard cost variances Java manfactures coffee mugs that it sells to other companies for customizing with their own logos. Jav prepares flexible budgets and uses a standard cost system to control manufacturing costs. The standard unit cost of a coffee mug is based on static budget volume of 60, 200 coffee mugs per month: Direct materials (0.2 lbs @ $0.25 per lb) $0.05 Direct labor (3 minutes @ $0.12 per minute) 0.36 Manufacturing overhead: Variable (3 minutes @ $0.05 per minute) $0.15 Fixed (3 minutes @ $0.14 per minute) 0.42 0.57 Total cost per coffee mug $0.98 Actual cost and production information for July 2012 follow: a. Actual production and sales were 62,900 coffee mugs. b. Actual direct materials usuage was 10,000 lbs., at an actual price of $0.17 per lb. c. Actual direct labor usuage was 202,000 minutes at a total cost of $30, 300. d. Actual overhead cost was $10,000 variable and $30, 500 fixed. e. Marketing and administrative costs were $115, 000.







Requirements



1. Compute the price and efficiency variances for direct materials and direct labor.

Explanation / Answer

Price and efficiency variances for direct material:

Standard price = $0.25 per pound
Standard quantity = 62,900*0.2 pounds = 12,580
Actual price = $0.17 per pound
Actual quantity = 10,000 pounds

Direct material price variance = actual quantity(actual price - standard price)
= 10,000(0.17-0.25) = -800, which is 800 favorable

Direct material efficiency variance = standard price(actual quantity - standard quantity)
= 0.25(10,000-12,580) = -645, which is 645 favorable

Price and efficiency variance for direct labor:

Standard rate = 0.12
Standard quantity = 3 minutes*62,900 = 188,700
Actual rate = 30,300/202,000 = 0.15
Actual quantity = 202,000 minutes

Direct labor price variance = Actual quantity(Actual rate - Standard rate)
= 202,000(0.15-0.12) = 6060 unfavorable

Direct labor efficiency variance = standard rate(actual quantity - standard quantity)
= 0.12(202,000 - 188,700) = 1596 unfavorable

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