Variance Analysis, Revision of Standards,Journal EntriesThe Lubbock plant of Morril’s Small Motor Division produces a major subassembly for a 6.0horsepower motor for lawnmowers. The plant uses a standard costing system for productioncosting and control. The standard cost sheet for the subassembly follows:Direct materials (6.0 lbs. @ $5) $30.00Direct labor (1.6 hrs. @ $12) 19.20During the year, the Lubbock plant had the following actual production activity:a. Production of subassemblies totaled 50,000 units.b. A total of 260,000 pounds of raw materials was purchased at $4.70 per pound.c. There were 60,000 pounds of raw materials in beginning inventory (carried at $5 per lb.).There was no ending inventory.d. The company used 82,000 direct labor hours at a total cost of $1,066,000.The Lubbock plant’s practical activity is 60,000 units per year. Standard overhead rates are computed based on practical activity measured in standard direct labor hours.Required:1. CONCEPTUAL CONNECTION Compute the materials price and usage variances. Of thetwo materials variances, which is viewed as the more controllable? To whom would youassign responsibility for the usage variance in this case? Explain.2. CONCEPTUAL CONNECTION Compute the labor rate and efficiency variances. Whois usually responsible for the labor efficiency variance? What are some possible causes forthis variance?3. CONCEPTUAL CONNECTION Assume that the purchasing agent for the small motorsplant purchased a lower-quality raw material from a new supplier. Would you recommendthat the plant continue to use this cheaper raw material? If so, what standards wouldlikely need revision to reflect this decision? Assume that the end product’s quality is notsignificantly affected.4. Prepare all possible journal entries
The Lubbock plant of Morril’s Small Motor Division produces a major subassembly for a 6.0
horsepower motor for lawnmowers. The plant uses a
costing and control. The standard cost sheet for the subassembly follows:
Direct materials (6.0 lbs. @ $5) $30.00
Direct labor (1.6 hrs. @ $12) 19.20
During the year, the Lubbock plant had the following actual production activity:
a. Production of subassemblies totaled 50,000 units.
b. A total of 260,000 pounds of raw materials was purchased at $4.70 per pound.
c. There were 60,000 pounds of raw materials in beginning inventory (carried at $5 per lb.).
There was no ending inventory.
d. The company used 82,000 direct labor hours at a total cost of $1,066,000.
The Lubbock plant’s practical activity is 60,000 units per year. Standard overhead rates are computed based on practical activity measured in standard direct labor hours.
Required:
1. CONCEPTUAL CONNECTION Compute the materials price and usage variances. Of the
two materials variances, which is viewed as the more controllable? To whom would you
assign responsibility for the usage variance in this case? Explain.
2. CONCEPTUAL CONNECTION Compute the labor rate and efficiency variances. Who
is usually responsible for the labor efficiency variance? What are some possible causes for
this variance?
3. CONCEPTUAL CONNECTION Assume that the purchasing agent for the small motors
plant purchased a lower-quality raw material from a new supplier. Would you recommend
that the plant continue to use this cheaper raw material? If so, what standards would
likely need revision to reflect this decision? Assume that the end product’s quality is not
significantly affected.
4. Prepare all possible journal entries
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The Lubbock plant of Morril's Small Motor Division produces a major subassembly for a 6.0 horsepower motor for lawn mowers. The plant uses a
| Direct materials (6.0 lbs. @ $5) | $30.00 |
| Direct labor (1.6 hrs. @ $12) | 19.20 |
During the year, the Lubbock plant had the following actual production activity:
- Production of subassemblies totaled 50,000 units.
- A total of 260,000 pounds of raw materials was purchased at $4.70 per pound.
- There were 60,000 pounds of raw materials in beginning inventory (carried at $5 per lb.). There was no ending inventory.
- The company used 82,000 direct labor hours at a total cost of $1,066,000.
The Lubbock plant's practical activity is 60,000 units per year. Standard overhead rates are computed based on practical activity measured in standard direct labor hours.
Required:
Question Content Area
1. Conceptual Connection: Compute the materials price and usage variances.
| Materials price variance | $fill in the blank f84978f2e04bfa0_1 |
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| Materials usage variance | $fill in the blank f84978f2e04bfa0_3 |
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Of the two materials variances, which is viewed as the most controllable?
2. Conceptual Connection: Compute the labor rate and efficiency variances.
| Labor rate variance | $fill in the blank f84978f2e04bfa0_6 |
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| Labor efficiency variance | $fill in the blank f84978f2e04bfa0_8 |
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3. Conceptual Connection: Assume that the purchasing agent for the small motors plant purchased a lower-quality raw material from a new supplier. Would you recommend that the plant continue to use this cheaper raw material?
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Question Content Area
4. Prepare all possible
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