Zanella’s Smart Shawls, Inc., is a small business that Zanella developed while i
ID: 2451235 • Letter: Z
Question
Zanella’s Smart Shawls, Inc., is a small business that Zanella developed while in college. She began hand-knitting shawls for her dorm friends to wear while studying. As demand grew, she hired some workers and began to manage the operation. Zanella’s shawls require wool and labor. She experiments with the type of wool that she uses, and she has great variety in the shawls she produces. Zanella has bimodal turnover in her labor. She has some employees who have been with her for a very long time and others who are new and inexperienced. Zanella uses standard costing for her shawls. She expects that a typical shawl should take 3 hours to produce, and the standard wage rate is $9.00 per hour. An average shawl uses 13 skeins of wool. Zanella shops around for good deals and expects to pay $3.40 per skein. Zanella uses a just-in-time inventory system, as she has clients tell her what type and color of wool they would like her to use. For the month of April, Zanella’s workers produced 200 shawls using 580 hours and 3,500 skeins of wool. Zanella bought wool for $9,000 (and used the entire quantity) and incurred labor costs of $5,520.
Required:
1. Calculate the price and efficiency variances for the wool and the price and efficiency variances for direct manufacturing labor.
2. Record the journal entries for the variances incurred.
Explanation / Answer
The price and efficiency variances for the wool
Standard material quantity = 13 skeins of wool
Standard material price = $3.40 per skein
Actual material quantity = 3500 / 200= 17.5
Actual material price = $9000/3500 = $ 2.57 per skein
The price variance of wool = (standard Price - actual Price) * Actual quantity
= (3.4-2.57)* 17.5 = 14.525 F
Efficiency variance of wool = (Standard quantity - Actual quantity)* Standard price
= (13-17.5)* 3.4 = 15.3 U
The price and efficiency variances for direct manufacturing labor
Standard hours = 3 hours
Standard wage rate = $9 per hour
Actual labour cost = $5520
Total actual hours = 580
Actual wage rate = 5520/580 = $9.52 Per hour
Actual hours = 580/ 200 = 2.9 hours
Price variance for direct manufacturing labour = (Standard rate - actual rate) * actual payment hours
= (9- 9.52)* 2.9 = 1.508 U
Efficiency variance for direct manufacturing labour = (standard hours - actual hours) * standard rate
= (3 - 2.9) * 9 = 0.9 F
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