SmartSound manufactures headphone cases. During September 2011, the company prod

Question

SmartSound manufactures headphone cases. During September 2011, the company produced and sold 105,000 cases and recorded the following cost data:

Requirements

R1. Compute the price and efficiency variances for direct materials and direct labor.

R2. For manufacturing overhead, compute the total variance, the flexible budget variance, and the production volume variance.

R3. Prepare a standard cost income statement through gross profit to report all variances to management. The sale price of the headset cases was $1.50 each.

R4. SmartSound’s management used more-experienced workers during September. Discuss the trade-off between the two direct labor variances.

Explanation / Answer

Direct Material Quantity Price Amount Standard cost per unit 2 0.15 0.3 Standard cost fr actual output 210000 0.15 31500 Actual cost 235000 0.20 47000 R1) Total Direct Material Vaiance IT measures overall change in Material cost in comparison to standard cost of actual output = Actual Cost - Standard cost = 47000 - 31500 = 15500 U Material price Variance it measures change in cost on account of change in material price = Actual quantity ( Actual Price -Standard price) = 235000 ( 0.20 - 0.15) = 11750 U Material Quantity variance It measures change in cost on account of change in quantity = standard price ( actual quantity - standard quantity) = 0.15 ( 235000 - 210000) = 3750 U Direct Labor Quantity Price Amount Standard cost per unit 0.02 9.00 0.18 Standard cost fr actual output 2100 9.00 18900 Actual cost 1700 9.15 15555 Total Direct Labor Vaiance IT measures overall change in Labor cost in comparison to standard cost of actual output = Actual Cost - Standard cost = 15555 - 18900 = 3345 F Labor price Variance it measures change in cost on account of change in labor price = Actual hours ( Actual Price -Standard price) = 1700 ( 9.15 - 9) = 255 U Labor Efficiency variance It measures change in cost on account of change in efficiency = standard price ( actual hours - standard hours) = 9 ( 1700 - 2100) = 3600 F

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