Required information Problem 10-47 Comprehensive Problem on Variance Analysis (L

Question

Required information Problem 10-47 Comprehensive Problem on Variance Analysis (LO 10-1, 10-3, 10-6) [The following information applies to the questions displayed below.] Springsteen Company manufactures guitars. The company uses a standard, job-order cost-accounting system in two production departments. In the Construction Department, the wooden guitars are built by highly skilled craftsmen and coated with several layers of lacquer. Then the units are transferred to the Finishing Department, where the bridge of the guitar is attached and the strings are installed. The guitars also are tuned and inspected in the Finishing Department. The diagram below depicts the production process Construction Department Finishing Department (Bridge and strings attached; guitar tuned and inspected.) (Basic guitar built from veneered wood.) | Each finished guitar contains seven pounds of veneered wood. In addition, one pound of wood is typically wasted in the production process. The veneered wood used in the guitars has a standard price of $12 per pound. The other parts needed to complete each guitar, such as the bridge and strings, cost $15 per guitar. The labor standards for Springsteen's two production departments are as follows Construction Department: 6 hours of direct labor at $20 per hour Finishing Department: 3 hours of direct labor at $15 per hour The following pertains to the month of July 1. There were no beginning or ending work-in-process inventories in either production department. 2. There was no beginning finished-goods inventory 3. Actual production was 500 guitars, and 300 guitars were sold on account for $400 each 4. The company purchased 6,000 pounds of veneered wood at a price of $12.50 per pound 5. Actual usage of veneered wood was 4,500 pounds of the wood purchased during July. 6. Enough parts (bridges and strings) to finish 600 guitars were purchased at a cost of $9,000 7. The Construction Department used 2,850 direct-labor hours. The total direct-labor cost in the Construction Department was $54,150 8. The Finishing Department used 1,570 direct-labor hours. The total direct-labor cost in that department was $25,120 9. There were no direct-material variances in the Finishing Department.

Explanation / Answer

2A. Direct material price and quantity variance Actual material cost Projected material cost Standard material cost Actual Quantity * Actual price Actual Quantity * Standard price Standard Quantity * Standard price 4500 12.5 4500 12 4000 12 (500*8) 56250 54000 48000 Direct material price variance=56250-54000=2250 Unfavorable Direct material Quantity variance=54000-48000=6000 Unfavorable Direct material variance=56250-48000=8250 Unfavorable 2B. Direct material purchase price variance Actual material cost Projected material cost Actual Quantity * Actual price Actual Quantity * Standard price 6000 12.5 6000 12 75000 72000 Direct material purchase price variance=75000-72000=3000 Unfavorable 2C. Direct labor rate and efficiency variance Actual labor cost Projected labor cost Standard labor cost Actual hours * Actual rate Actual hours * Standard rate Standard hours * Standard rate 2850 19 2850 20 3000 20 (54150/2850) (500*6) 54150 57000 60000 Direct labor rate variance=57000-54150=2850 favorable Direct labor efficiency variance=60000-57000=3000 favorable Direct material variance=60000-54150=5850 favorable 2D. Direct labor rate and efficiency variance Actual labor cost Projected labor cost Standard labor cost Actual hours * Actual rate Actual hours * Standard rate Standard hours * Standard rate 1570 16 1570 15 1500 15 (25120/1570) (500*3) 25120 23550 22500 1050 Direct labor rate variance=25120-23550=1570 Unfavorable Direct labor efficiency variance=23550-22500=1050 Unfavorable Direct material variance=25120-22500=2620 Unfavorable

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