Question

Question 4 VARIANCE ANALYSIS
Disco Limited manufactures two electronic components (X and Y) in one of its factories. Titanium is one of several materials used in the manufacture of both components.  

Disco Ltd uses standard and normal costing. The standard direct labour hours per unit of production and budgeted production quantities for a 13- week period are displayed in Exhibit 1.


Exhibit 1 Standard direct labour hours and budgeted production for electronic components

Standard direct labour hours Budgeted d production quantities for 13-week period

x	0.40	28,000 units
Y	0.50	20,000 units

The standard wage rate for all direct workers was $16 per hour. Throughout the 13week period 39 direct workers were employed, each working a standard 40-hour week. Budgeted manufacturing overhead for the 13-week period was $278,400 and it was allocated to products on the basis of units produced.

Actual production information for the 13-week period is displayed in Exhibit 2


Exhibit2: Actual production data for 13-week period

Production Component X :27,000 units   Component Y :22,000 units

Direct wages paid $333,420

Titanium purchases (and usage) 47000 kilograms $851,100

Titanium price variance $6,650F

Manufacturing overhead $282,000

  


Required:

(a) Calculate the flexible budget direct labour variances for the period in as much detail as possible.

(b) Calculate the standard purchase price/kilogram for titanium for the period.   

(c) Calculate the under-/over-allocated manufacturing overhead for the period.   

(d) Provide the journal entry to write off the direct labour variances, the purchase price variance and the under-/over-allocated overhead from their respective accounts to Cost of Goods Sold (COGS).

Answer 1

Standard Actuals Standard Hours (SH Direct Labor Cost Srd Rate Per Hour (SR 21,800 348,800 16.00 AH (39 13 40 Direct Labor Cost AR 20,280 333,420 S16.44 Material purchased (quantit AQ AP 851,100 47,000 47,000 18.11 a) Calculate the flexible budget direct labour variances for the period in as much detail as possible Labor rate of pay variance (SR-AR) AH Labor efficiency Variance-(SH-AH) SR Total Labor Cost Variance Check 8,940) Adverse 24,320 Favourable 15,380 Favourable 0 b) Calculate the standard purchase price/kilogram for titanium for the period $6,650 $6,650 $6,650 $0.14 $18.25 Titanium price variance $6,650F Materials price variance-(SP-AP)AQ (SP-18.11) 47,000- SP-18.11) c) Calculate the under-/over-allocated manufacturing overhead for the period Budgeted manufacturing overhead Budgeted d Budgeted Rate Actual production Manufacturing OH applied Actual Overhhead Overapplied $278,400 48,000 5.80 49,000 $ 284,200 $282,000 2,200 uction quantities unit d) Provide the journal entry to write off the direct labour variances, the purchase price variance and the under-/over-allocated overhead from their respective accounts to Cost of Goods Sold (COGS Over applied overhead Manufacturing Overhead Debit $ 2,200 Credit Cost of Goods Sold 2,200 Work in progress inventory a/c Direct labor price variance a/c Direct labor efficiency variance Wages payable 348,800 8,940 24,320 333,420 To record the use of direct materials Raw materials inventory a/c (47,000 x $ 18.25) Direct Materials Purchase Price Variance Accounts Payable 857,750 6,650 851,100