Tuscany Statuary manufactures bust statues of famous historical figures. All statues are the same size. Each unit requires the same amount of resources. The following information is from the static budget for 2009:
Expected production and sales 5,000 units
Direct materials 50,000 pounds
Direct manufacturing labor 20,000 hours
Total fixed costs $1,000,000
Standard quantities, standard prices, and standard unit costs follow for direct materials and direct manufacturing labor.
Standard Qty Standard $ Standard Unit $
Direct materials 10 pounds $10 / pound $100
Direct Mfg labor 4 hours $40 / hour $160
During 2009, actual number of units produced and sold was $6,000. Actual cost of direct materials used was $594,000, based on 54,000 pounds purchased at $11 per pound. Direct manufacturing labor-hours actually used were 25,000, at the rate of $38 per hour. As a result, actual direct manufacturing labor costs were $950,000. Actual fixed costs were $1,005,000. There was no beginning or ending inventories.
1. Calculate the sales-volume variance and flexible-budget variance for operating income.
2. Compute price and efficiency variances for direct materials and direct manufacturing labor.
* Complete using Excel© BrainMass Inc. brainmass.com October 25, 2018, 4:18 am ad1c9bdddf
This solution discusses labor management and relations. It helps calculate the sales volume variance and flexible-budget variance for operating income and the price and efficiency variance for direct materials and direct manufacturing labor.
Materials and manufacturing labor variances.
7-22: Materials and manufacturing labor variances. Consider the following data collected for Great Homes, Inc.:
Direct Material Direct Manufacture Material's
Cost incurred: actual inputs x actual prices $200,000 $90,000
Actual inputs x standard prices 214,000 86,000
Standard inputs allowed for actual
output x standard prices 225,000 80,000
Compute the price, efficiency, and flexible-budget variances for direct materials and direct manufacturing labor.
7-23: Price and efficiency variances. CellOne is a cellular phone service reseller. CellOne contracts with major cellular operators for airtime in bulk and then resells service to retail customers. CellOne budgeted to sell 7,800,000 minutes in the month ended March 31, 2007. Actual minutes sold totaled only 7,500,000. Due to fluctuations in hourly usage, CellOne "overbuys" airtime from cellular operators. CellOne plans to buy 10% more airtime than it plans to sell. For example, CellOne's budget called for the purchase of 8,580,000 minutes, based on the plan to sell 7,800,000 minutes. In what follows, think of purchased airtime as direct materials.
CellOne budgets purchased airtime to cost 4.5 cents per minute. Actual purchased airtime in 2007 averaged 5.0 cents per minute. CellOne incurs direct labor costs due to the employment of technicians. One hour of technical support is required for every 5,000 minutes of airtime sold. In practice, only 1,600 hours of technical support were used. Technical support was planned at $60 per hour. Actual technical support costs averaged $62 per hour.
1. Calculate the flexible-budget variance for direct materials and direct labor costs. [Use the 8,250,000 (7,500 x 1.10) minutes in the flexible budget.]
2. Calculate the price and efficiency variances for direct materials and labor costs.
7-25: Price and efficiency variances, journal entries. Chemical, Inc., has set up the following standards per finished unit for direct materials and direct manufacturing labor:
Direct materials: 10 lbs. At $3 per lb. $30.00
Direct manufacturing labor: 0.5 hrs. at $20 per hr. 10.00
The number of finished units budgeted for March 2007 was 10,000; 9,810 units were actually produced.
Actual results in March 2007 were:
Direct materials: 98,073 lbs. Used
Direct manufacturing labor: 4,900 hrs. $102,900
Assume that there was no beginning inventory of either direct materials or finished units.
During the month, materials purchases amounted to 100,000 lbs., at a total cost of $310,000. Input-price variances are isolated upon purchase. Input-efficiency variances are isolated at the time of usage.
1. Compute the March 2007 price and efficiency variances of direct materials and direct manufacturing labor.
2. 2. Prepare journal entries to record the variances in requirement 1.
3. Comment on the March 2007 price and efficiency variances of Chemical, Inc.
4. Why might Chemical, Inc., calculate direct materials price variances and direct materials efficiency variances with reference to different points in time?