Cole manufactures coffee mugs that it sells to other companies for customizing w
ID: 2576539 • Letter: C
Question
Cole manufactures coffee mugs that it sells to other companies for customizing with their own logos. Cole prepares flexible budgets and uses a standard cost system to control manufacturing costs. The standard unit cost of a coffee mug is based on static budget volume of 60,100 coffee mugs per month:
Data Table
Direct materials (
0.2
lbs @
$0.25
per lb)
$0.05
Direct labor
(
3
minutes @
$0.10
per minute)
0.30
Manufacturing overhead:
Variable
(
3
minutes @
$0.05
per minute)
$0.15
Fixed
(
3
minutes @
$0.14
per minute)
0.42
0.57
Total cost per coffee mug
$0.92
Actual cost and production information for July follow:
a.
62,800
b.
12,000
$0.18
c.
201,000
$26,130.
d.
$40,800
Requirements
1.
Compute the price and efficiency variances for direct materials and direct labor.
2.
Journalize the usage of direct materials and the assignment of directlabor, including the related variances.
3.
For manufacturing overhead, compute the total variance, the flexible
(Hint:
fixed overhead in the static budget.)
4.
Cole
Direct materials (
0.2
lbs @
$0.25
per lb)
$0.05
Direct labor
(
3
minutes @
$0.10
per minute)
0.30
Manufacturing overhead:
Variable
(
3
minutes @
$0.05
per minute)
$0.15
Fixed
(
3
minutes @
$0.14
per minute)
0.42
0.57
Total cost per coffee mug
$0.92
Explanation / Answer
Actual Cost
Volume
62800
coffee mugs
Direct Material
12000 lbs
$ 0.18
$ 2,160.00
Direct Labour
201000 hrs
$ 0.13
$ 26,130.00
Overhead Cost
$ 40,800.00
Total Cost
$ 69,090.00
1.
Direct Material Variances
Price Variance
Actual Quantity (Actual Price - Standard Price)
= 62800 (0.18 - 0.18)
0
No Variance
Efficiency Variance
Standard price ( Actual Quantity - Standard Quantity )
= 0.18 (62800 - 60100)
486
The unfavourable variance is of $ 486
Direct Labour Variance
Price Variance
Actual Quantity ( Actual Rate - Standard Rate)
= 201000 ( 0.13 - 0.10)
6030
The unfavourable variance is of $ 6,030
Efficiency Variance
Standard Rate ( Actual Hours - Standard Hours)
= 0.10 ( 201000 - 180300)
2070
The unfavourable variance is of $ 2,070
3.
Manufacturing Overhead Variance
Total Variance
Actual Overhead - Absorbed Overhead
= 40800 - 26376
14424
Budget Variance
Actual Overhead - Budgeted Overhead
= 40800 - 25242
15558
Production Volume Variance
Fixed Overhead Rate (Actual Output - Standard Output)
= .42 (62800 - 60100)
1134
4.
The skilled workers allowed the company to generate more output but the expenditure increased because of the same. Overall the variances can be set off against the increase in the revenue.
Actual Cost
Volume
62800
coffee mugs
Direct Material
12000 lbs
$ 0.18
$ 2,160.00
Direct Labour
201000 hrs
$ 0.13
$ 26,130.00
Overhead Cost
$ 40,800.00
Total Cost
$ 69,090.00
1.
Direct Material Variances
Price Variance
Actual Quantity (Actual Price - Standard Price)
= 62800 (0.18 - 0.18)
0
No Variance
Efficiency Variance
Standard price ( Actual Quantity - Standard Quantity )
= 0.18 (62800 - 60100)
486
The unfavourable variance is of $ 486
Direct Labour Variance
Price Variance
Actual Quantity ( Actual Rate - Standard Rate)
= 201000 ( 0.13 - 0.10)
6030
The unfavourable variance is of $ 6,030
Efficiency Variance
Standard Rate ( Actual Hours - Standard Hours)
= 0.10 ( 201000 - 180300)
2070
The unfavourable variance is of $ 2,070
3.
Manufacturing Overhead Variance
Total Variance
Actual Overhead - Absorbed Overhead
= 40800 - 26376
14424
Budget Variance
Actual Overhead - Budgeted Overhead
= 40800 - 25242
15558
Production Volume Variance
Fixed Overhead Rate (Actual Output - Standard Output)
= .42 (62800 - 60100)
1134
4.
The skilled workers allowed the company to generate more output but the expenditure increased because of the same. Overall the variances can be set off against the increase in the revenue.