ACCT week 11 CH8 SmartSound Manufacturers

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Managerial Accounting
Problem 8-29A
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SmartSound manufacturers headphone cases. During September 2011, the company produced 105,000
cases and recorded the following data:

Problem 8-29A
Requirements

1. Compute the price variance and efficiently variance for direct materials and for direct labor.
2. For manufacturing overhead, compute the total variance, the flexible budget variance, and the production
volume variance.
3. Prepare a standard cost income statement through gross profit to report all variances to management.
Sale price of the headset cases was $1.50 each.
4. SmartSound's management used more-expensive workers during September. Explain the trade-off
between the two direct labor variances.

Requirement 1
First compute the price variances for direct materials and direct labor. Indicate favorable or unfavorable.
Organize the data first:
Direct Materials Direct Labor
Actual price 0.20 part 9.15 /hour
Standard price 0.15 part 9.00 /hour
Actual quantity 235,000 parts 1700 hours
Standard quantity 210,000 parts 21000 hours

PRICE VARIANCE:
Direct materials
Direct labor

Next compute the efficiency variances for direct materials and direct labor and select
if the amount is favorable or unfavorable.

EFFICIENCY VARIANCE:
Direct materials
Direct labor

Requirement 2
Compute the total variance, the flexible budget variance, and the production volume variance for
manufacturing overhead.

Smart Sound
Computation of Overhead Variances

Total overhead variance:
Actual overhead cost
Standard overhead allocated to production
Total overhead variance

Overhead flexible budget variance:
Actual overhead costs
Flexible budget overhead for actual outputs
Overhead flexible budget variance

Production volume variance:
Flexible budget overhead for actual outputs -
Standard overhead allocated to production -
Production volume variance

Requirement 3
Prepare the standard cost income statement.

SmartSound
Standard Cost Income Statement
Month Ended September 30, 2011
Sales revenue
Cost of goods sold at standard cost
Manufacturing cost variances:
Direct materials price variance

Total manufacutring variances
Cost of goods sold at actual cost
Gross Profit

Requirement 4
SmartSound's management used more-expensive workers during September. Explain the trade-off
between the two direct labor variances.

Explain here.