Heritage furniture Co. uses a standard cost system. One of thecompany%u2019s mos
ID: 2373950 • Letter: H
Question
Heritage furniture Co. uses a standard cost system. One of thecompany%u2019s most popular products is an oak entertainmentcenter that looks like an old icebox but houses a television,stereo, or other electronic components. The per-unit standard costsof the entertainment center, assuming a %u201Cnormal%u201D volumeof 1,000 units per month, are as follows:
Direct materials, 100 board-feel of wood at $1.30 perfoot%u2026%u2026%u2026%u2026%u2026%u2026%u2026%u2026%u2026%u2026%u2026%u2026$130.00
Direct labor, 5 hours at $8.00 perhour%u2026%u2026%u2026%u2026%u2026%u2026%u2026%u2026%u2026%u2026%u2026%u2026%u2026%u2026%u2026%u2026%u2026%u2026%u2026%u202640.00
Manufacturing overhead (applied at $22 per unit)
Fixed ($15,000 / 1,000 units of normalproduction)%u2026%u2026%u2026%u2026%u2026%u2026$15,000
Variable%u2026%u2026%u2026%u2026%u2026%u2026%u2026%u2026%u2026%u2026%u2026%u2026%u2026%u2026%u2026%u2026%u2026%u2026%u2026%u2026%u2026%u2026%u20267.00 22.00
Total standard untilcost%u2026%u2026%u2026%u2026%u2026%u2026%u2026%u2026%u2026%u2026%u2026%u2026%u2026%u2026%u2026 $192.00
During July, 800 entertainment centers were scheduled andproduced at the following actual unit costs:
Direct materials, 110 feet at $1.20 perfoot%u2026%u2026%u2026%u2026%u2026%u2026%u2026%u2026%u2026%u2026%u2026%u2026%u2026%u2026%u2026%u2026%u2026%u2026..$132.00
Direct labor, 5?2 hours at $7.80 perhour%u2026%u2026%u2026%u2026%u2026%u2026%u2026%u2026%u2026%u2026%u2026%u2026%u2026%u2026%u2026%u2026%u2026%u2026%u2026.42.90
Manufacturing overhead, $18,480 / 800units%u2026%u2026%u2026%u2026%u2026%u2026%u2026%u2026%u2026%u2026%u2026%u2026%u2026%u2026%u2026%u2026%u2026...23.10
Total actual unitcost%u2026%u2026%u2026%u2026%u2026%u2026%u2026%u2026%u2026%u2026%u2026%u2026%u2026%u2026%u2026%u2026%u2026%u2026%u2026%u2026%u2026%u2026%u2026%u2026.$198.00
Instructions:
1. Materials price variance
2. Materials quantity variance
3. Labor rate variance
4. Labor efficiency variance
5. Overhead spending variance
6. Volume variance
Explanation / Answer
1(1)MPV = Actual Quantity Used*(Standard Price - Actual Price)
ie MPV = 800*110*(1.3 - 1.2) = 8800 (U)
1.(2) MQV = Standard Price*(Actual Quantity - Standard Quantity)
ie MQV = 1.3*(88000 - 80000) = 10400 (U)
(3) LRV = Actual Hours*(Actual Rate - Standard Rate)
ie LRV= 800*5.5*(7.8 - 8) = 880 (F)
(4) LEV = Standard Rate*(Actual Hours - Standard Hours)
ie LEV = 8*(4400 - 4000) = 3200 (U)
(5)OH SV = Actual Overhead - Standard Overhead
= 18480 - 20600 = 2120 (F)
(6) Volume Variance = OH applied using standard cost - OH per flexible budget for 800 units
= 17600 - 20600 = 3000 (U)
2 WIP Inventory (at standard) Dr 1,04,000
Materials Quantity Variance Dr 10,400
Materials Price Variance Cr 8,800
Materials Inventory (at actual) Cr 1,05,600
WIP Inventory (at standard) Dr 32,000
Labor Efficiency Variance Dr 3,200
Labor Rate Variance Cr 880
Direct Labor Cr 34,320
WIP Inventory (at standard) Dr 17,600
Volume Variance Dr 3,000
Overhead Spending Variance Cr 2,120
Manufacturing Overhead (actual cost) Cr 18,480
3 MQV shows that Material purchase is not favoarbaole. Better procurement planning & nego is reqd.
Unfac LEV inducates that Labour productivity is low. It could be supervison issues or untrained labor