Chapter 23: 13RQ (page 1305)
Question:List the direct labor variances, and briefly describe each.
Answer
The direct material variances can be in form of direct labor cost variance and direct labor efficiency variance
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McCarthy Fender, which uses a standard cost system, manufactured 20,000 boat fenders during 2018. The 2018 revenue and cost information for McCarthy follows:
Sales Revenue \( 1,300,000
Cost of Goods Sold (at standard) 196,800
Direct materials cost variance 7,150 F
Direct materials efficiency variance 5,950 U
Direct labor cost variance 400 U
Direct labor efficiency variance 530 F
Variable overhead cost variance 650 U
Variable overhead efficiency variance 360 F
Fixed overhead cost variance 2,350 U
Fixed overhead volume variance 4,410 U
Assume each fender produced was sold for the standard price of \)65, and total selling and administrative costs were $250,000. Prepare a standard cost income statement for 2018 for McCarthy Fender
Identifying the benefits of standard costs
Setting standards for a product may involve many employees of the company. Identify some of the employees who may be involved in setting the standard costs, and describe what their role might be in setting those standards.
Computing standard overhead allocation rates
The following information relates to Morgan, Inc.’s overhead costs for the month:
Static budget variable overhead | \(7,800 |
Static budget fixed overhead | \)3,900 |
Static budget direct labor hours | 1,300 hours |
Static budget number of units | 5,200 units |
Morgan allocates manufacturing overhead to production based on standard direct labor hours. Compute the standard variable overhead allocation rate and the standard fixed overhead allocation rate.
Explain the difference between a favorable and an unfavorable variance.
In 75 words or fewer, explain what a cost variance is and describe its potential causes.
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