Question:
Morgan Inc. is a small company that manufactures baseball caps. For the past several years, the company has used a standard cost accounting system. Cole prepares monthly income statements for management with variances reported within the statement. In April 2013, 67,500 caps were produced. There were no finished caps on hand at either April 1 or April 30. The selling price per cap was $10.00. The following standard and actual cost data applied to the month of April when normal capacity was 14,000 direct labor hours.
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Cost Element
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Standard (per unit)
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Actual
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Direct materials
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1 .5 yards at $3.00 per yard
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$318,600 for 108,000 yards ($2.95 yard)
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Direct labor
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.2 hour at $11.00 per hour
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$158,760 for 14,175 hours ($11 20 per hour)
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Overhead
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.2 hour at $ 5.00 per hour
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$49,000 fixed overhead
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$20,000 variable overhead
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$20,000 variable overhead
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Overhead is applied on the basis of direct labor hours. At normal capacity, budgeted fixed overhead costs were $49,000 and budgeted variable costs were $21000.
Instructions
(a) Compute the total. price, and quantity variances for (1) materials, (2) labor, and (3) the total, controllable, and volume variances for manufacturing overhead (assuming no beginning or ending material balances).
(b) Journalize the entries to record the variances and the completion and sale of the caps.