Business Specialty, Inc., manufactures two staplers: small and regular. The standard quantities of direct labor and direct materials per unit for the year are as follows:
The standard price paid per pound of direct materials is $1.60. The standard rate for labor is $8.00. Overhead is applied on the basis of direct labor hours. A plant wide rate is used. Budgeted overhead for the year is as follows:
Budgeted fixed overhead....... $360,000
Budgeted variable overhead..... 480,000
The company expects to work 12,000 direct labor hours during the year; standard overhead rates are computed using this activity level. For every small stapler produced, the company produces two regular staplers. Actual operating data for the year are as follows:
a. Units produced: small staplers, 35,000; regular staplers, 70,000.
b. Direct materials purchased and used: 56,000 pounds at $1.55—13,000 for the small stapler and 43,000 for the regular stapler. There were no beginning or ending direct materials inventories.
c. Direct labor: 14,800 hours—3,600 hours for the small stapler and 11,200 hours for the regular stapler. Total cost of direct labor: $114,700.
d. Variable overhead: $607,500.
e. Fixed overhead: $350,000.
1. Prepare a standard cost sheet showing the unit cost for each product.
2. Compute the direct materials price and usage variances for each product. Prepare journal entries to record direct materials activity.
3. Compute the direct labor rate and efficiency variances for each product. Prepare journal entries to record direct labor activity.
4. Compute the variances for fixed and variable overhead. Prepare journal entries to record overhead activity. All variances are closed to Cost of Goods Sold.
5. Assume that you know only the total direct materials used for both products and the total direct labor hours used for both products. Can you compute the total direct materials and direct labor usage variances? Explain.

  • CreatedSeptember 01, 2015
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