# A actual dir mat cost may 2010 actual dir mat cost

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a Actual dir. mat. cost, May 2010 = Actual dir. mat. cost, May 2009 0.98 0.95 = \$12,705 0.98 0.95 = \$11.828.36 Alternatively, actual dir. mat. cost, May 2010 = (Actual dir. mat. quantity used in May 2009 0.98) (Actual dir. mat. price in May 2009 0.95) = (7,260 meters 0.98) (\$1.75/meter 0.95) = 7,114.80 \$1.6625 = \$11,828.36 b (7,260 meters 0.98) \$1.50 per meter = \$10,672.20 c Unchanged from 2009. d Actual dir. labor cost, May 2010 = Actual dir. manuf. cost May 2009 0.98 = \$8,464.50 0.98 = \$8,295.21 Alternatively, actual dir. labor cost, May 2010 = (Actual dir. manuf. labor quantity used in May 2009 0.98) Actual dir. labor price in 2009 = (1,045 hours 0.98) \$8.10 per hour = 1,024.10 hours \$8.10 per hour = \$8,295.21 e (1,045 hours 0.98) \$8.00 per hour = \$8,192.80 Total flexible-budget variance for both inputs = \$1,258.57U + \$165U = \$1,423.57U Total flexible-budget cost of direct materials and direct labor = \$9,900 + \$8,800 = \$18,700 Total flexible-budget variance as % of total flexible-budget costs = \$1,423.57 \$18,700 = 7.61% 3. Efficiencies have improved in the direction indicated by the production manager—but, it is unclear whether they are a trend or a one-time occurrence. Also, overall, variances are still 7.6% of flexible input budget. GloriaDee should continue to use the new material, especially in light of its superior quality and feel, but it may want to keep the following points in mind: The new material costs substantially more than the old (\$1.75 in 2009 and \$1.6625 in 2010 vs. \$1.50 per meter). Its price is unlikely to come down even more within the coming year. Standard material price should be re-examined and possibly changed. GloriaDee should continue to work to reduce direct materials and direct manufacturing labor content. The reductions from May 2009 to May 2010 are a good development and should be encouraged. May May May 2010 2010 2010 Actual Actual Actual Results Results Results Price Price Price Variance Variance Variance Actual Actual Actual Quantity Quantity Quantity Budgeted Budgeted Budgeted Price Price Price Efficiency Efficiency Efficiency Variance Variance Variance Flexible Flexible Flexible Budget Budget Budget (1) (1) (1) (2) (2) (2) = (1) (1) (1) (3) (3) (3) (3) (3) (3) (4) (4) (4) = (3) (3) (3) (5) (5) (5) (5) (5) (5) Units 550 550 Direct materials \$11,828.36 a \$1,156.16 U \$10,672.20 b \$772.20 U \$9,900.00 c Direct manuf. labor \$ 8,295.21 d \$ 102.41 U \$ 8,192.80 e \$607.20 F \$8,800.00 c Total price variance \$1,258.57 U Total efficiency variance \$165.00 U
7-24 7-24 7-24 (30 min.) Price Price Price and and and efficiency efficiency efficiency variances, variances, variances, journal journal journal entries. entries. entries. 1. Direct materials and direct manufacturing labor are analyzed in turn: \$15,000 U \$2,002 F Price variance Efficiency variance \$7,350 U \$750 F Price variance Efficiency variance a \$465,000 ÷ 100,000 = \$4.65 b \$154,350 ÷ 4,900 = \$31.5 2. Direct Materials Control 450,000 Direct Materials Price Variance 15,000 Accounts Payable or Cash Control 465,000 Work-in-Process Control 443,250 Direct Materials Control 441,248 Direct Materials Efficiency Variance 2,002 Work-in-Process Control 147,750 Direct Manuf. Labor Price Variance 7,350 Wages Payable Control 154,350 Direct Manuf. Labor Efficiency Variance 750 3. Some students’ comments will be immersed in conjecture about higher prices for materials, better quality materials, higher grade labor, better efficiency in use of materials, and so forth. A possibility is that approximately the same labor force, paid somewhat more, is taking slightly less time with better materials and causing less waste and spoilage.
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