McCartney Company manufactures guitars. The company uses a standard, job- order cost accounting system in two production departments. In the Construction Department the wooden guitars are built by highly skilled craftspeople and coated with several layerst of lacquer. Then the units are transferred to the Finishing Department, where the bridge of the guitar is attached and the strings are installed. The guitars also are tuned and inspected in the Finishing Department. The diagram below depicts the production process.

Each finished guitar contains seven pounds of veneered wood. In addition, one pound of wood is typically wasted in the production process. The veneered wood used in the guitars has a standard price of $ 12 per pound. The other parts needed to complete each guitar, such as the bridge and strings, cost $ 15 per guitar. The labor standards for McCartney’s two production departments are as follows:

Construction Department: 6 hours of direct labor at $ 20 per hour

Finishing Department: 3 hours of direct labor at $ 15 per hour

The following pertains to the month of July.

1. There were no beginning or ending work-in-process inventories in either production department.

2. There was no beginning finished- goods inventory.

3. Actual production was 750 guitars, and 450 guitars were sold on account for $ 390 each.

4. The company purchased 9,000 pounds of veneered wood at a price of $ 12.50 per pound.

5. Actual usage of veneered wood was 6,750 pounds.

6. Enough parts (bridges and strings) to finish 900 guitars were purchased at a cost of $ 13,500.

7. The Construction Department used 4,275 direct- labor hours. The total direct- labor cost in the Construction Department was $ 81,225.

8. The Finishing Department used 2,355 direct-labor hours. The total direct- labor cost in that department was $ 37,680.

9. There were no direct- material variances in the Finishing Department.

Required:

1. Prepare a schedule that computes the standard costs of direct material and direct labor in each production department and in total for the month of July.

2. Prepare three exhibits which compute the July direct-material and direct- labor variances in the Construction Department and the July direct- labor variances in the Finishing Department.

3. Prepare a cost variance report for July similar to that shown in Exhibit 10– 5. McCartney Company investigates all variances greater than $ 5,000 or 5%.

Transcribed Image Text:

Construction Department Finishing Department (Basic guitar built from veneered wood.) (Bridge and strings attached; guitar tuned and inspected.)