Eagle Co. manufactures bentwood chairs and tables. Wood for both products is steam-bent in the same process, but different types of wood are used for each product. Thus, materials cost is identified separately to each product. One production cycle uses 20 board feet. Labor cost is identified to the process as a whole, as is overhead cost. Data for the month of July follow: Chairs Tables Direct material cost per board foot $3.60 $4.20 Number of parts formed per production cycle (20 board feet) 10 8 Actual operating hours in July 120 380 Parts produced during July 4,000 9,000 Budgeted annual conversion cost: Labor $150,000 Utilities 125,000 Depreciation 65,000 Other overhead 50,000 Total $390,000 Budgeted annual operating hours for steam-bending 5,200 In your computations, round cost per unit amounts to two decimal places. If required, round final answers to the nearest dollar. a. Compute July's predetermined rate for the steam-bending process. b. Compute July's direct material costs for chairs and tables. c. Compute conversion costs to be applied to chairs and tables in July. d. Journalize the following entries: 1. Assignment of direct materials to chairs and tables. If an amount box does not require an entry, leave it blank. 2. Application of conversion costs to chairs and tables. If an amount box does not require an entry, leave it blank. 3. The transfer of completed chairs and tables to the Finishing Department. All of July's production was completed in July. If an amount box does not require an entry, leave it blank.
Variance Analysis
In layman's terms, variance analysis is an analysis of a difference between planned and actual behavior. Variance analysis is mainly used by the companies to maintain a control over a business. After analyzing differences, companies find the reasons for the variance so that the necessary steps should be taken to correct that variance.
Standard Costing
The standard cost system is the expected cost per unit product manufactured and it helps in estimating the deviations and controlling them as well as fixing the selling price of the product. For example, it helps to plan the cost for the coming year on the various expenses.
Eagle Co. manufactures bentwood chairs and tables. Wood for both products is steam-bent in the same process, but different types of wood are used for each product. Thus, materials cost is identified separately to each product. One production cycle uses 20 board feet. Labor cost is identified to the process as a whole, as is overhead cost. Data for the month of July follow:
| Chairs | Tables | |
| Direct material cost per board foot | $3.60 | $4.20 |
| Number of parts formed per production cycle (20 board feet) | 10 | 8 |
| Actual operating hours in July | 120 | 380 |
| Parts produced during July | 4,000 | 9,000 |
| Budgeted annual conversion cost: | ||
| Labor | $150,000 | |
| Utilities | 125,000 | |
| 65,000 | ||
| Other overhead | 50,000 | |
| Total | $390,000 | |
| Budgeted annual operating hours for steam-bending | 5,200 |
In your computations, round cost per unit amounts to two decimal places. If required, round final answers to the nearest dollar.
a. Compute July's predetermined rate for the steam-bending process.
b. Compute July's direct material costs for chairs and tables.
c. Compute conversion costs to be applied to chairs and tables in July.
d. Journalize the following entries:
1. Assignment of direct materials to chairs and tables. If an amount box does not require an entry, leave it blank.
2. Application of conversion costs to chairs and tables. If an amount box does not require an entry, leave it blank.
3. The transfer of completed chairs and tables to the Finishing Department. All of July's production was completed in July. If an amount box does not require an entry, leave it blank.
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