Problem #1: Standard Costing Ultra, Inc. manufactures and sells a full line of s

Question

Problem #1: Standard Costing Ultra, Inc. manufactures and sells a full line of sunglasses. The company uses a standard cost system. Department managers' are held responsible for the explanation of the variances in their department performance reports. Recently, the variances in the Prestige line of sunglasses have been of concern. Data for the month of August is presented below. Assume beginning and ending inventory levels for WiP and FG are zero. Static Bud $600,000 $150,000 $135,000 $114,000 $201,000 tual $575,000 $145,000 $142,000 $111,000 $177,000 revenues DM DL FOH (cost driver gross profit DL hours) selling price per Prestige sunglass DM (total # ounces) DL rate (S per DL hour) $76.923 15,600 $18.00 $78.767 16,000 $14.20

Explanation / Answer

Labor Standard quanity*Standard rate Actual quanity*Standard rate Actual Quantity*Actual rate =7500*18 =10000*18 =10000*14.2 135000 180000 142000 Labor efficiency Variance Labor Rate variance =135000-180000 =180000-142000 -45000 Unfavorable 38000 Favourable Date Account Title & explanation Debit Credit DL expense 142000 Wages Payable 142000 WIP Inventory 135000 DL efficiency Variance 45000 DL spending variance 38000 DL expense 142000 Static Budget Actual Revenues 600000 575000 Selling price 76.923 78.767 Units 7800 7300 Direct labor cost 135000 142000 Direct labor per unit 17 19 Direct Labor per hour 18 14.2 7500 10000

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