Problem #1: Standard Costing Ultra, Inc. manufactures and sells a full line of s

Question

Problem #1: Standard Costing Ultra, Inc. manufactures and sells a full line of sunglasses. The company uses a standard cost system. Department managers' are held responsible for the explanation of the variances in their department performance reports. Recently, the variances in the Prestige line of sunglasses have been of concern. Data for the month of August is presented below. Assume beginning and ending inventory levels for WiP and FG are zero. Static Bud $600,000 $150,000 $135,000 $114,000 $201,000 tual $575,000 $145,000 $142,000 $111,000 $177,000 revenues DM DL FOH (cost driver gross profit DL hours) selling price per Prestige sunglass DM (total # ounces) DL rate (S per DL hour) $76.923 15,600 $18.00 $78.767 16,000 $14.20

Explanation / Answer

Standard Actual A Direct Labor 135000 142000 B Labor Rate 18 14.2 C Labor Hours 7500 10000 SH 7500 SR 18 AH 10000 AR 14.2 Labor Spending Variance (AH*SR)-(AH*AR) (10000*18)-(10000*14.2) 180000-142000 38000 (F) Labor Efficiency Variance (SH*SR)-(AH*SR) 135000-180000 45000(U) Journal Entries: DL Expense 142000    To Wages Payable 142000 WIP Inventory 135000 DL Efficiency Variance -45000 DL Spending Variance 38000    To DL Expense 142000

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