Heritage furniture Co. uses a standard cost system. One of the company's most popular products is an oak entertainment center that looks like an old icebox but houses a television, stereo, or other electronic components. The per-unit standard costs of the entertainment center, assuming a "normal" volume of 1,000 units per month, are as follows:
Direct materials, 100 board-feel of wood at $1.30 perfoot....................................$130.00
Direct labor, 5 hours at $8.00 perhour............................................................40.00
Manufacturing overhead (applied at $22 per unit)
Fixed ($15,000 / 1,000 units of normalproduction)..................$15,000
Variable.....................................................................7.00 22.00
Total standard untilcost............................................. $192.00
During July, 800 entertainment centers were scheduled andproduced at the following actual unit costs:
Direct materials, 110 feet at $1.20 perfoot........................................................$132.00
Direct labor, 5?2 hours at $7.80 perhour..........................................................42.90
Manufacturing overhead, $18,480 / 800units......................................................23.10
Total actual unitcost.........................................................................$198.00
Instructions:
Compute the following cost variances for the of July:
1. Materials price variance
2. Materials quantity variance
3. Labor rate variance
4. Labor efficiency variance
5. Overhead spending variance
6. Volume variance
Prepare journal entries to assign manufacturing costs to the work in process Inventory account and to record cost variances forJuly. Use separate entries for (1) direct materials, (2) directlabor, and (3) overhead costs.
Comment on any significant problem or areas of cost savings revealed by your computation of cost variances. Also comment on any possible causal relationships between significant favorable and unfavorable cost variances.