Jordan Corporation Inc. manufactures a single product and uses a standard cost system for control purposes....

Jordan Corporation Inc. manufactures a single product and uses a standard cost system for control purposes. The standard cost card for the product is as follows:

Standard Cost Standard Cost Per Unit ($) Direct materials 2 metres @ $8.45 per metre $16.90 Direct labour 1.4 hours @ $16 per DLH 22.40 Variable overhead 1.4 hours @ $2.50 per DLH 3.50 Fixed overhead 1.4 hours @ $6 per DLH 8.40 Total cost $51.20 * DLH - Direct labour hours

Some additional information for the year just ended:

(i) A total of 30,000 units were manufactured during the year.

(ii) Total materials purchased and used during the year totalled 64,000 metres at a total cost of $547,200. There was no beginning direct materials inventory for the year.

(iii) Total direct labour cost incurred during the year amounted to $687,300 for a total of 43,500 hours worked.

The following data relates to manufacturing overhead costs:

Standard DLH required for budgeted level of production 35,000 hours Actual variable overhead costs $108,000 Actual fixed overhead costs $211,800

The CEO is very pleased with the performance of the production team, for having achieved a smaller than expected cost variance of only 1.2%. This is well within the threshold set of 3.0% of budgeted costs. He plans to recommend to the Board for all staff to be awarded bonuses for good cost control.

Required:

(a) Compute ALL the possible variances for the year based on the information given.

(b) Write journal entries to record ALL variances computed in (a) above (narrations are not required).

(c) Explain, by showing clear computations, how the CEO arrived at a cost variance of 1.2%. Do you agree with the CEO’s assessment that bonuses should be given to all staff for good cost control during the year? Explain.

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Expert Solution

ekkarill92 answered 1 year ago

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