Thomas is a cost accountant and business analyst for Dashing Design Company (DDC), which manufactures expensive brass doorknobs. DDC uses two direct-cost categories: direct materials and direct manufacturing labor. Thomas feels that manufacturing overhead is most closely related to material usage. Therefore, DDC allocates manufacturing overhead to production based upon pounds of materials used. At the beginning of 2017, DDC budgeted annual production of 400,000 doorknobs and adopted the following standards for each doorknob: Input Cost/Doorknob Direct materials (brass) 0.3 lb. @ $11/lb. $3.30 Direct manufacturing labor 1.2 hours @ $15/hour 18.00 Variable manufacturing overhead $6/lb x 0.3 lb. 1.80 Fixed manufacturing overhead $14/lb. x 0.3 lb. 4.20 Standard cost per doorknob $27.30 Actual results for April 2017 were as follows: Production 31,000 doorknobs Direct materials purchased 12,700 lb. at $12/lb. Direct materials used 8,000 lbs. Direct manufacturing labor 29,700 hours for $653,400 1. For the month of April, compute the following variances, indicating whether each is favorable (F) or unfavorable (U). a. Direct materials price variance (based on purchases) b. Direct materials efficiency variance c. Direct manufacturing labor price variance d. Direct manufacturing labor efficiency variance e. Variable manufacturing overhead spending variance f. Variable manufacturing overhead efficiency variance g. Production-volume variance h. Fixed manufacturing overhead spending variance 2. Can Thomas use any of the variances to help explain any of the other variances? Give examples.
Process Costing
Process costing is a sort of operation costing which is employed to determine the value of a product at each process or stage of producing process, applicable where goods produced from a series of continuous operations or procedure.
Job Costing
Job costing is adhesive costs of each and every job involved in the production processes. It is an accounting measure. It is a method which determines the cost of specific jobs, which are performed according to the consumer’s specifications. Job costing is possible only in businesses where the production is done as per the customer’s requirement. For example, some customers order to manufacture furniture as per their needs.
ABC Costing
Cost Accounting is a form of managerial accounting that helps the company in assessing the total variable cost so as to compute the cost of production. Cost accounting is generally used by the management so as to ensure better decision-making. In comparison to financial accounting, cost accounting has to follow a set standard ad can be used flexibly by the management as per their needs. The types of Cost Accounting include – Lean Accounting, Standard Costing, Marginal Costing and Activity Based Costing.
Thomas is a cost accountant and business analyst for Dashing Design Company (DDC), which manufactures expensive brass doorknobs. DDC uses two direct-cost categories: direct materials and direct manufacturing labor. Thomas feels that manufacturing overhead is most closely related to material usage. Therefore, DDC allocates manufacturing overhead to production based upon pounds of materials used.
|
|
Input
|
Cost/Doorknob
|
|---|---|---|
|
Direct materials (brass)
|
0.3 lb. @ $11/lb.
|
$3.30
|
|
Direct manufacturing labor
|
1.2 hours @ $15/hour
|
18.00
|
|
Variable manufacturing overhead
|
$6/lb x 0.3 lb.
|
1.80
|
|
Fixed manufacturing overhead
|
$14/lb. x 0.3 lb.
|
4.20
|
|
|
|
$27.30
|
Actual results for April 2017 were as follows:
|
Production
|
31,000 doorknobs
|
|---|---|
|
Direct materials purchased
|
12,700 lb. at $12/lb.
|
|
Direct materials used
|
8,000 lbs.
|
|
Direct manufacturing labor
|
29,700 hours for $653,400
|
|
1.
|
For the month of April, compute the following variances, indicating whether each is favorable (F) or unfavorable (U).
a. Direct materials price variance (based on purchases)
b. Direct materials efficiency variance
c. Direct manufacturing labor price variance
d. Direct manufacturing labor efficiency variance
e. Variable manufacturing overhead spending variance
f. Variable manufacturing overhead efficiency variance
g. Production-volume variance
h. Fixed manufacturing overhead spending variance
|
|
2.
|
Can Thomas use any of the variances to help explain any of the other variances? Give examples. |
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