Haliburton Mills Inc. is a large producer of men’s and women’s clothing. The company uses standard costs for all of its products. The standard costs and actual costs for a recent period are given below for one of the company’s product lines (per unit of product): Standard Cost Actual Cost Direct materials: Standard: 3.0 metres at $4.60 per metre $ 13.80 Actual: 3.2 metres at $4.35 per metre $ 13.92 Direct labour: Standard: 2.6 hours at $3.60 per hour 9.36 Actual: 2.2 hours at $3.95 per hour 8.69 Variable manufacturing overhead: Standard: 2.6 hours at $2.40 per hour 6.24 Actual: 2.2 hours at $2.90 per hour 6.38 Fixed manufacturing overhead: Standard: 2.6 hours at $4.00 per hour 10.40 Actual: 2.2 hours at $4.05 per hour 8.91 Total cost per unit $ 39.80 $ 37.90 Actual costs: 6,500 units at $37.90 $ 246,350 Standard costs: 6,500 units at $39.80 258,700 Difference in cost—favourable $ 12,350 During this period, the company produced 6,500 units of product. A comparison of standard and actual costs for the period on a total cost basis is also given above. There was no inventory of materials on hand to start the period. During the period, 20,800 metres of materials was purchased and used in production. The denominator level of activity for the period was 14,640 hours. Required: 1. For direct materials: a. Compute the price and quantity variances for the period. (Indicate the effect of each variance by selecting "F" for favourable, "U" for unfavourable, and "None" for no effect (i.e., zero variance).) b. Prepare journal entries to record all activity relating to direct materials for the period. 2. For direct labour: a. Compute the rate and efficiency variances. (Indicate the effect of variance by selecting "F" for favourable, "U" for unfavourable, and "None" for no effect (i.e., zero variance).) b. Prepare a journal entry to record the incurrence of direct labour cost for the period. (List debit entries first). 3. Compute the variable manufacturing overhead spending and efficiency variances. (Indicate the effect of each variance by selecting "F" for favourable, "U" for unfavourable, and "None" for no effect (i.e., zero variance).) 4. Compute the fixed overhead budget and volume variances. (Indicate the effect of variance by selecting "F" for favourable, "U" for unfavourable, and "None" for no effect (i.e., zero variance).) 5. On seeing the $12,350 total cost variance, the company’s president stated, “It’s obvious that our costs are well under control.” Do you agree?
Haliburton Mills Inc. is a large producer of men’s and women’s clothing. The company uses
| Standard Cost |
Actual Cost |
|||||
| Direct materials: | ||||||
| Standard: 3.0 metres at $4.60 per metre | $ | 13.80 | ||||
| Actual: 3.2 metres at $4.35 per metre | $ | 13.92 | ||||
| Direct labour: | ||||||
| Standard: 2.6 hours at $3.60 per hour | 9.36 | |||||
| Actual: 2.2 hours at $3.95 per hour | 8.69 | |||||
| Variable manufacturing overhead: | ||||||
| Standard: 2.6 hours at $2.40 per hour | 6.24 | |||||
| Actual: 2.2 hours at $2.90 per hour | 6.38 | |||||
| Fixed manufacturing overhead: | ||||||
| Standard: 2.6 hours at $4.00 per hour | 10.40 | |||||
| Actual: 2.2 hours at $4.05 per hour | 8.91 | |||||
| Total cost per unit | $ | 39.80 | $ | 37.90 | ||
| Actual costs: 6,500 units at $37.90 | $ | 246,350 |
| Standard costs: 6,500 units at $39.80 | 258,700 | |
| Difference in cost—favourable | $ | 12,350 |
During this period, the company produced 6,500 units of product. A comparison of standard and actual costs for the period on a total cost basis is also given above.
There was no inventory of materials on hand to start the period. During the period, 20,800 metres of materials was purchased and used in production. The denominator level of activity for the period was 14,640 hours.
Required:
1. For direct materials:
a. Compute the price and quantity variances for the period. (Indicate the effect of each variance by selecting "F" for favourable, "U" for unfavourable, and "None" for no effect (i.e., zero variance).)
b. Prepare journal entries to record all activity relating to direct materials for the period.
2. For direct labour:
a. Compute the rate and efficiency variances. (Indicate the effect of variance by selecting "F" for favourable, "U" for unfavourable, and "None" for no effect (i.e., zero variance).)
b. Prepare a
3. Compute the variable manufacturing overhead spending and efficiency variances. (Indicate the effect of each variance by selecting "F" for favourable, "U" for unfavourable, and "None" for no effect (i.e., zero variance).)
4. Compute the fixed overhead budget and volume variances. (Indicate the effect of variance by selecting "F" for favourable, "U" for unfavourable, and "None" for no effect (i.e., zero variance).)
5. On seeing the $12,350 total cost variance, the company’s president stated, “It’s obvious that our costs are well under control.” Do you agree?
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