Question

J&W Corporation manufactures a new electronic game console. The current standard cost sheet for a game console follows.

Direct materials, ? kilograms at $6 per kilogram	$	?	per game
Direct labor, 0.75 hours at ? per hour		?	per game
Overhead, 0.75 hours at ? per hour		?	per game
Total costs	$	36	per game

Assume that the following data appeared in J&W’s records at the end of the past month.

Actual production		47,000	units
Actual sales		44,000	units
Materials (113,500 kilograms)		?
Materials price variance		40,000	U
Materials efficiency variance		32,400	U
Direct labor price variance		10,200	U
Direct labor (34,000 hours)		561,000
Underapplied overhead (total)		18,100	U

There are no materials inventories.

Required:

a-1. Complete the standard cost sheet for a game console given below.
a-2. Prepare a variance analysis for direct materials and direct labor.
b. Assume that all production overhead is fixed and that the $18,100 underapplied is the only overhead variance that can be computed. What are the actual and applied overhead amounts?

Answer 1

A-1 standard cost sheet

Direct material	2.8 kgs	at $6 per gram	$16.8 per game(2.8*$6)
Direct labor	0.75 hours	at $16.2 per hour	$12.15 per game($16.2*0.75)
Overhead	0.75 hours	at $9.4 per hour(7.05/0.75)	$7.05
Total cost			$36

1.Material efficiency variance = SR (SQ-AQ)

-32,400 =$6 (SQ-113,500)

-32,400/6=SQ-113,500

SQ=108,100 kgs

2.Standard quantity per unit = Standard quantity/ actual production

108,100/47,000

=2.3 kgs per unit

3.Actual labor rate

labor price variance =AH (SR-AR)

-10,200=(34,000*SR )-$561,000

SR=$16.2 per hour

4. Overhead cost = total cost-labor-material

=$36-$16.8-12.15

=$7.05

A-2

variance analysis

Direct material
Price variance	$40,000	U
efficiency variance	$32,400	U
Direct Labor
Price variance	$10,200	U
Efficiency variance	$20,250	F

Labor efficiency variance = SR(SH-AH)

$16.2(47,000 units*0.75 hour per unit)-34,000

=20,250 Favorable (As the actual hours are less than budgeted hours for actual output the variance is favorabel)

B

Applied overhead =Actual quantity*Standard cost per unit

47,000*$7.05

=$331,350

As the overhead is underapplied, actual overhead > applied overhead.

Actual OH = applied OH+$18,100

=$331,350+$18,100

=$349,450