Springsteen Company manufactures guitars. The company uses a standard, job-order

Question

Springsteen Company manufactures guitars. The company uses a standard, job-order cost-accounting system in two production departments. In the Construction Department, the wooden guitars are built by highly skilled craftsmen and coated with several layers of lacquer. Then the units are transferred to the Finishing Department, where the bridge of the guitar is attached and the strings are installed. The guitars also are tuned and inspected in the Finishing Department. The diagram below depicts the production process.

Construction Department: 6 hours of direct labor at $20 per hour

Finishing Department: 3 hours of direct labor at $15 per hour

The following pertains to the month of July.

Construction Department Finishing Department (Basic guitar built from veneered wood.) (Bridge and strings attached; guitar tuned and inspected.)

Explanation / Answer

2A. Direct material price and quantity variance Actual material cost Projected material cost Standard material cost Actual Quantity * Actual price Actual Quantity * Standard price Standard Quantity * Standard price 4500 12.5 4500 12 4000 12 (500*8) 56250 54000 48000 Direct material price variance=56250-54000=2250 Unfavorable Direct material Quantity variance=54000-48000=6000 Unfavorable Direct material variance=56250-48000=8250 Unfavorable 2B. Direct material purchase price variance Actual material cost Projected material cost Actual Quantity * Actual price Actual Quantity * Standard price 6000 12.5 6000 12 75000 72000 Direct material purchase price variance=75000-72000=3000 Unfavorable 2C. Direct labor rate and efficiency variance Actual labor cost Projected labor cost Standard labor cost Actual hours * Actual rate Actual hours * Standard rate Standard hours * Standard rate 2850 19 2850 20 3000 20 (54150/2850) (500*6) 54150 57000 60000 Direct labor rate variance=57000-54150=2850 favorable Direct labor efficiency variance=60000-57000=3000 favorable Direct material variance=60000-54150=5850 favorable 2D. Direct labor rate and efficiency variance Actual labor cost Projected labor cost Standard labor cost Actual hours * Actual rate Actual hours * Standard rate Standard hours * Standard rate 1570 16 1570 15 1500 15 (25120/1570) (500*3) 25120 23550 22500 1050 Direct labor rate variance=25120-23550=1570 Unfavorable Direct labor efficiency variance=23550-22500=1050 Unfavorable Direct material variance=25120-22500=2620 Unfavorable Cost variance report Construction department Finishing department Amount % of standard cost Variance investigation required Amount % of standard cost Variance investigation required Direct material: Standard cost,given actual output 48000 7500 (500*1*15) Direct material price variance 2250 U 4.69% No 0 No Direct material quanyity variance 6000 U 12.50% Yes 0 No Direct material purchase price variance 3000 U 6.25% Yes 0 No Direct labor: Standard cost,given actual output 60000 22500 Direct labor rate variance 2850 F 4.75% No 1570 U 6.98% Yes Direct labor efficiency variance 3000 F 5.00% No 1050 U 4.67% No

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