Unit Costs, Multiple Products, Variance Analysis, Journal Entries Business Specialty, Inc., manufactures two staplers: small and regular. The standard quantities of direct labor and direct materials per unit for the year are as follows: Small Regular Direct materials (oz.) 6.0 10.00 Direct labor (hrs.) 0.1 0.15 The standard price paid per pound of direct materials is $1.60. The standard rate for labor is $8.00. Overhead is applied on the basis of direct labor hours. A plantwide rate is used. Budgeted overhead for the year is as follows: Budgeted fixed overhead $360,000 Budgeted variable overhead 480,000 The company expects to work 12,000 direct labor hours during the year; standard overhead rates are computed using this activity level. For every small stapler produced, the company produces two regular staplers. Actual operating data for the year are as follows: Units produced: small staplers, 35,000; regular staplers, 70,000. Direct materials purchased and used: 56,000 pounds at $1.55—13,000 for the small stapler and 43,000 for the regular stapler. There were no beginning or ending direct materials inventories. Direct labor: 14,800 hours—3,600 hours for the small stapler and 11,200 hours for the regular stapler. Total cost of direct labor: $114,700. Variable overhead: $607,500. Fixed overhead: $350,000. Required: 1. Prepare a standard cost sheet showing the unit cost for each product. Round standard usage amounts to three decimal places if rounding is required. Round other answers to the nearest cent. 2. Compute the direct materials price and usage variances for each product and Prepare journal entries to record direct materials activity. 3. Compute the direct labor rate and efficiency variances for each product and Prepare journal entries to record direct labor activity. 4. Compute the variances for fixed and variable overhead, and prepare journal entries to record overhead activity. 5. Assume that you know only the total direct materials used for both products and the total direct labor hours used for both products. Compute the total direct materials and direct labor usage variances.
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.
Unit Costs, Multiple Products,
Business Specialty, Inc., manufactures two staplers: small and regular. The standard quantities of direct labor and direct materials per unit for the year are as follows:
| Small | Regular | |
| Direct materials (oz.) | 6.0 | 10.00 |
| Direct labor (hrs.) | 0.1 | 0.15 |
The standard price paid per pound of direct materials is $1.60. The standard rate for labor is $8.00.
| Budgeted fixed overhead | $360,000 |
| Budgeted variable overhead | 480,000 |
The company expects to work 12,000 direct labor hours during the year; standard overhead rates are computed using this activity level. For every small stapler produced, the company produces two regular staplers.
Actual operating data for the year are as follows:
- Units produced: small staplers, 35,000; regular staplers, 70,000.
- Direct materials purchased and used: 56,000 pounds at $1.55—13,000 for the small stapler and 43,000 for the regular stapler. There were no beginning or ending direct materials inventories.
- Direct labor: 14,800 hours—3,600 hours for the small stapler and 11,200 hours for the regular stapler. Total cost of direct labor: $114,700.
- Variable overhead: $607,500.
- Fixed overhead: $350,000.
Required:
1. Prepare a
2. Compute the direct materials price and usage variances for each product and Prepare journal entries to record direct materials activity.
3. Compute the direct labor rate and efficiency variances for each product and Prepare journal entries to record direct labor activity.
4. Compute the variances for fixed and variable overhead, and prepare journal entries to record overhead activity.
5. Assume that you know only the total direct materials used for both products and the total direct labor hours used for both products. Compute the total direct materials and direct labor usage variances.
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