Question

In: Accounting

You have a business manufacturing snarky masks for hipster wannabes. You produce these masks in batches...

You have a business manufacturing snarky masks for hipster wannabes. You produce these masks in batches of 100. Each mask has the following manufacturing standards (i.e., budgets):

Direct materials

0.5 yards of material

$70.00 per yard

Direct labor

2.2 Direct Labor Hours

$21.00 per Direct Labor Hour

There is no beginning or ending inventory for WIP and Finished Goods. You have sufficient beginning direct material inventory of material that you do not need to purchase any during the month.

During October 2020 you made 11 batches of masks (100 masks in each batch) and spent/used/incurred the following:

Yards of material

600 yards

$40,538 in total

Direct labor

2,400 DLH

$51,340 in total

REQUIRED:

  1. Prepare an analysis of actual direct production costs for March compared to Budget-adjusted-for-output (Flex Budget). Identify the usage/efficiency and price/rate variances.
  2. Record journal entries to record the use of direct materials and direct labor, (Post costs to WIP first, then transfer all of WIP to Finished Goods. Transfer all of Finished Goods to COGS – (pretend there are no indirect manufacturing costs) remember there is no beginning or ending inventory for WIP or Finished Goods.)
  3. Prepare the adjusting journal entry to close all of the variances to COGS.
  4. Ferd is responsible for buying your direct materials. Did he do a “good” job in March? Why?
  5. Franny is in charge of the use of the direct materials. Did she do a “good” job in March with regards to material usage? Why?
  6. Franny is also in charge of the use of direct labor. Did she do a “good” job in March with regards to labor usage/efficiency? Why?
  7. Futz sets hourly wage rates for the direct labor. Did he do a “good” job in March? Why?

Solutions

Expert Solution

Material Price Variance = AQ *(SP-AP) = 600 * (70 - 67.56) = 1462 (F)

Material Usage Variance = SP *(SQ-AQ) = 70 * (550-600) = 3500 (A)

Labour Rate Variance = AH*(SR-AR) = 2400 * (21-21.39) = 940 (A)

Labour Efficiency Variance = SR * (SH-AH) = 21 * (2420 -2400) = 420 (F)

1. Fred has done a good job because he had purchased at a price(i.e. $67.56) than the budgeted Price (i.e. $70.00)

2. Franny was unsuccessful in his Raw Material Consumption i.e. Actual Raw Material Consumption was higher as compared to the Budgeted.

3. Franny was done a good job in the usage of Labour Hours, he had made the work completed in less than the Budgeted Hours.

4. Futz was unsuccessful in fixing the Labour Rates because he paid the Direct Labour higher than the rate budgeted.  


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