Martell Company produces and sells a single product. A standard cost card for th

Question

Martell Company produces and sells a single product. A standard cost card for the product follows: Direct materials: 2 feet at $9.50 per foot... . Direct labor: 1.5 hours at $8.00 per hour Variable overhead: 1.5 hours at $2.50 per hour Fixed overhead: 1.5 hours at $6.00 per hour $19.00 12.00 3.75 9.00 $43.75 Standard cost per unit The following information is available for the year just ended: a. The company manufactured and sold 30,000 units of product during the year. b. A total of 62,000 feet of material were purchased during the year at a cost of $8.90 per foot. 58,000 feet of this material was used to manufacture the 30,000 units. There was no beginning or ending inventories for the year. The company worked 47,000 direct labor hours during the year at a cost of $8.20 per hour. Overhead is applied to products on a basis of direct labor hours. Data relating to overhead costs follow c. d. Budgeted fixed overhead costs . . . . . . . . . . . . . . . . . . . Actual variable overhead incurred _ . . . . . . . . . _ . . Actual fixed overhead incurred . $215,000 110,000 211,000 REQUIRED: (show work) a. Compute the direct material price and quantity variances, the direct labor rate and efficiency variance, the variable overhead spending and efficiency variances and the fixed overhead budget and volume variances. b. Prepare the journal entries for direct material and direct labor costs and their variances

Explanation / Answer

a.

Direct material price variance= (Standard price - Actual price) x Actual quantity = (9.5 - 8.9) x 58000 = 34800 (Favorable)

Direct material quantity variance= Standard price x (Standard qty for actual output - Actual quantity)= 9.5 x (30000x2 - 58000)= 9.5 x (60000-58000)= 19000 (Favorable)

Direct labor rate variance= Actual time x (Std rate - Actual rate) = 47000 x (8-8.2) = -9400 (Adverse)

Direct labor efficiency variance= Std rate x (Std time for actual output - Actual time)= 8 x (30000x1.5 - 47000)= 8 x (45000 - 47000)= -16000 (Adverse)

Variable OH spending variance= Actual time x (Std Var OH rate per hour - Actual Var OH rate per hour)= 47000 x (2.5 - 110000/47000) = 47000 x (2.5 - 2.34) = 7500 (Favorable)

Variable OH efficiency variance= Std Var OH rate per hour x (Std hours for actual production - Actual hours)= 2.5 x (30000x1.5 - 47000)= 2.5 x (45000 - 47000)= -5000 (Adverse)

Fixed OH budget variance= Budgeted fixed OH - Actual fixed OH= 215000 - 211000= 4000 (Favorable)

Fixed OH volume variance= Recovered fixed OH - Budgeted fixed OH= Std fixed OH rate per unit x Actual production - Budgeted fixed OH = 9 x 30000 - 215000 = 270000 - 215000 = 55000 (Favorable)

b. Journal entries

Purchase of direct material

Inventory account

Dr

589000

62000 feet at Std rate of 9.5 per feet

Vendor account

Cr

551800

62000 feet at actual rate of 8.9 per feet

Price variance

Cr

37200

Favorable rate variance on 62000 feet purchased

Issue of direct material

Consumption account

Dr

551000

Issue of 58000 feet for production at Std rate of 9.5 per feet

Inventory account

Cr

551000

Issue of 58000 feet for production at Std rate of 9.5 per feet

Direct labor cost payment

Wages exp

Dr

376000

Actual labor cost for 47000 hours at Std rate of 8 per hour

Wage rate variance

Dr

9400

Adverse rate variance on 47000 hours of labor

Bank account

Cr

385400

Actual labor cost for 47000 hours at actual rate of 8.2 per hour

Purchase of direct material

Inventory account

Dr

589000

62000 feet at Std rate of 9.5 per feet

Vendor account

Cr

551800

62000 feet at actual rate of 8.9 per feet

Price variance

Cr

37200

Favorable rate variance on 62000 feet purchased

Issue of direct material

Consumption account

Dr

551000

Issue of 58000 feet for production at Std rate of 9.5 per feet

Inventory account

Cr

551000

Issue of 58000 feet for production at Std rate of 9.5 per feet

Direct labor cost payment

Wages exp

Dr

376000

Actual labor cost for 47000 hours at Std rate of 8 per hour

Wage rate variance

Dr

9400

Adverse rate variance on 47000 hours of labor

Bank account

Cr

385400

Actual labor cost for 47000 hours at actual rate of 8.2 per hour

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