# Question: Jennifer has just been promoted to manager of the gear

Jennifer has just been promoted to manager of the gear division of Machine Parts Co. The division, which manufactures gears for hydraulic drives, uses a standard cost system. The standard cost of a completed gear follows:

The fixed overhead rate is based on an estimated 1,000 units per month. Direct labor is nearly a fixed cost in this division. Selling and administrative costs are $50,000 per month plus $10 per unit sold.

The following information is for production during April:

Number of units manufactured ....... 950

Purchase of 1,000 gears ......... $34,950

Gears used .............. 954

Purchase of 1,000 gear housings ...... $20,000

Gear housings used ........... 950

Direct labor costs (397 hours) ....... $ 6,120

Variable factory overhead costs ....... $ 3,677

Fixed factory overhead costs ........ $18,325

Selling and administrative costs ...... $59,101

The company’s policy is to record materials price variances at the time materials are purchased. You may want to use a spreadsheet to perform calculations.

REQUIRED

A. Prepare a flexible cost budget for the month of April.

B. Calculate all of the common direct cost variances.

C. Calculate all common factory overhead variances.

D. Calculate a total variance for the selling and administrative costs.

E. Prepare a complete, yet concise, report that would be useful in evaluating control of production costs for April.

F. Prepare a report that sums all the variances necessary to prepare the reconciling journal entry at the end of the period. Explain how you would close the total variance; that is, identify the account or accounts that would be affected, and whether expenses in the accounts will be increased or decreased to adjust the records for the total variance.

G. Suppose you are manager of the gear division and you are reviewing the report prepared in part (E). Use information in the report to identify questions you might have about April’s productioncosts.

The fixed overhead rate is based on an estimated 1,000 units per month. Direct labor is nearly a fixed cost in this division. Selling and administrative costs are $50,000 per month plus $10 per unit sold.

The following information is for production during April:

Number of units manufactured ....... 950

Purchase of 1,000 gears ......... $34,950

Gears used .............. 954

Purchase of 1,000 gear housings ...... $20,000

Gear housings used ........... 950

Direct labor costs (397 hours) ....... $ 6,120

Variable factory overhead costs ....... $ 3,677

Fixed factory overhead costs ........ $18,325

Selling and administrative costs ...... $59,101

The company’s policy is to record materials price variances at the time materials are purchased. You may want to use a spreadsheet to perform calculations.

REQUIRED

A. Prepare a flexible cost budget for the month of April.

B. Calculate all of the common direct cost variances.

C. Calculate all common factory overhead variances.

D. Calculate a total variance for the selling and administrative costs.

E. Prepare a complete, yet concise, report that would be useful in evaluating control of production costs for April.

F. Prepare a report that sums all the variances necessary to prepare the reconciling journal entry at the end of the period. Explain how you would close the total variance; that is, identify the account or accounts that would be affected, and whether expenses in the accounts will be increased or decreased to adjust the records for the total variance.

G. Suppose you are manager of the gear division and you are reviewing the report prepared in part (E). Use information in the report to identify questions you might have about April’s productioncosts.

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