Helen has been using a standard cost system developed by Good Numbers and calculates the standard cost
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Question:
Helen has been using a standard cost system developed by Good Numbers and calculates the standard cost of a completed pair of RTW jeans as $72.00, as follows:
Quantity | Price $ | Unit | Cost per pair of jeans $ | |
Denim fabric meters | 2 | 10 | /metre | 20.00 |
Direct labour hours | 2 | 20 | /hour | 40.00 |
Variable factory overhead | 0.4 | 10 | /hour | 4.00 |
Fixed factory overhead | 0.4 | 20 | /hour | 8.00 |
Total standard cost | 72.00 |
The fixed overhead rate is based on an estimated 600 units per month. Direct labour is nearly a fixed cost in this business. Selling and administrative costs are $4500 per month plus $2 per pair of jeans sold. The following information is for production during April:
Units | ||
Number of pairs of jeans made | 565 | Jeans |
Purchase of 1200 metres of denim | 13,200 | $ |
Number of metres used | 1,150 | metres |
Direct labour costs (1200 hours) | 24,500 | $ |
Variable factory overhead costs | 2,750 | $ |
Fixed factory overhead costs | 4,020 | $ |
Selling and administrative costs | 3,770 | $ |
Divine Denim’s policy is to record materials price variances at the time materials are purchased. Use a spreadsheet to perform calculations.
As an accountant working for Good Numbers use a spreadsheet to:
- prepare a flexible cost budget for the month of April.
- calculate all common direct cost variances.
- calculate all common factory overhead variances.
- calculate a total variance for the selling and administrative costs.
- prepare a production cost variance report for April.
- 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
- use information in the April production cost variance report (part v. above) to identify and describe questions Helen, the owner of Devine Denim, might have about April’s production costs.
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