Chapter 21: Q14DQ (page 967)
How can the manager of advertising sales at Google use flexible budgets to enhance performance?
The manager can utilize the flexible budget to identify and treat the variances between actual and standard results.
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Kenya Company’s standard cost accounting system recorded this information from its June operations.
Standard direct material cost | $130,000 |
Direct materials quantity variance (favorable) | 5,000 |
Direct materials price variance (favorable) | 1,500 |
Actual direct labor cost | 65,000 |
Direct labor efficiency variance (favorable) | 3,000 |
Direct labor rate variance (unfavorable) | 500 |
Actual overhead cost | 250,000 |
Volume variance (unfavorable) | 12,000 |
Controllable variance (unfavorable) | 8,000 |
Required
1. Prepare journal entries dated June 30 to record the company’s costs and variances for the month. (Do not prepare the journal entry to close the variances.)
Analysis Component
2. Identify the variances that would attract the attention of a manager who uses management by exception. Describe what action(s) the manager should consider.
A manufactured product has the following information for June.
Standard Actual
Direct materials 6 lbs.@ \(8 per lbs. 48,500 lbs.@ \)8.10 per lb.
Direct labor 2 hrs.@ \(16 per hr. 15,700 hrs.@ \)16.50 per hr.
Overhead 2 hrs.@ \(12 per hr. \)198,000
Units manufactured 8,000
Compute the:
(1) Standard cost per unit and
(2) Total cost variance for June. Indicate whether the cost variance is favorable or unfavorable.
BatCo makes metal baseball bats. Each bat requires 1 kg of aluminum at \(18 per kg and 0.25 direct labor hours at \)20 per hour. Overhead is assigned at the rate of $40 per direct labor hour. What amounts would appear on a standard cost card for BatCo?
Refer to the information from Exercise 21-17. Compute and interpret the following.
1. Variable overhead spending and efficiency variances.
2. Fixed overhead spending and volume variances.
3. Controllable variance.
What department is usually responsible for a direct labor rate variance? What department is usually responsible for a direct labor efficiency variance? Explain.
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