Answered: Arrow Industries employs a standard…

Principles of Accounting Volume 2

19th Edition

ISBN:9781947172609

Author:OpenStax

Publisher:OpenStax

Chapter8: Standard Costs And Variances

Section: Chapter Questions

Problem 5EA: Sitka Industries uses a cost system that carries direct materials inventory at a standard cost. The...

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Question

55.

Arrow Industries employs a standard cost system in which direct materials inventory is carried at standard cost. Arrow has established the following standards for the prime costs of one unit of product.

	Standard Quantity	Standard Price	Standard Cost
Direct materials	8 pounds	$1.80 per pound	$14.40
Direct labor	.25 hour	$8.00 per hour	2.00
			$16.40

During November, Arrow purchased 160,000 pounds of direct materials at a total cost of $304,000. The total factory wages for November were $42,000, 90% of which were for direct labor. Arrow manufactured 18,000 units of product during November using 142,500 pounds of direct materials and 5,000 direct labor hours. Arrow’s direct labor usage (efficiency) variance for November is

Group of answer choices

$2,000 unfavorable

$4,000 unfavorable

$2,000 favorable

$2,200 favorable

$1,800 unfavorable

$4,000 favorable

Definition Definition System of assigning an estimated cost to the product (instead of the actual cost) so that the product cost can be determined well in advance and the pricing of the product can be done on time. Since the actual cost cannot be predicted at the initial stage of the production process, the estimated cost is recorded in the books. Any deviation of the estimated cost of the actual cost is adjusted in the books at the end of the period.

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