Topline Surf Boards manufactures a single product. The standard cost of one unit of this product is as follows:
Direct materials: 6 feet at $1 per foot . . . . . . . . . . . . . . . . . . . . . . $ 6.00
Direct labor: 1 hour at $4.50 per hour . . . . . . . . . . . . . . . . . . . . . . . . 4.50
Variable manufacturing overhead: 1 hour at $3 per hour . . . . . . . . . . 3.00
Total standard variable cost per unit . . . . . . . . . . . . . . . . . . . . . . . $13.50
During October, 6,000 units were produced. Selected data relating to the month's production follow:
Material purchased: 60,000 feet at $0.95 per foot . . . . . . . . . . $57,000
Material used in production: 38,000 feet . . . . . . . . . . . . . . . . . -
Direct labor: ? hours at $ ? per hour . . . . . . . . . . . . . $27,950
Variable manufacturing overhead cost incurred . . . . . . . . . . . $20,475
Variable manufacturing overhead efficiency variance . . . . . . . $1,500 U
There was no beginning inventory of raw materials. The variable manufacturing overhead rate is based on direct labor-hours.
Required:
1. For direct materials:
a. Compute the price and quantity variances for October.
b. Prepare journal entries to record activity for October.
2. For direct labor:
a. Compute the rate and efficiency variances for October.
b. Prepare a journal entry to record labor activity for October.
3. For variable manufacturing overhead:
a. Compute the spending variance for October, and verify the efficiency variance given above.
b. If manufacturing overhead is applied to production on the basis of direct labor-hours, is it possible to have a favorable direct labor efficiency variance and an unfavorable variable overhead efficiency variance? Explain.
4. State possible causes of each variance that you have computed.