Java manufactures coffee mugs that it sells to other companies for customizing with their own logos.

P23-28A Computing and journalizing standard cost variances [45 min]

P23-28A Java manufactures coffee mugs that it sells to other companies for customizing with their own logos. Java prepares flexible budgets and uses a standard cost system to control manufacturing costs. The standard unit cost of a coffee mug is based on static budget volume of 60,200 coffee mugs per month:

Actual cost and production information for July 2012 follow:

a. Actual production and sales were 62,900 coffee mugs.

b. Actual direct materials usage was 10,000 lbs., at an actual price of $0.17 per lb.

c. Actual direct labor usage was 202,000 minutes at a total cost of $30,300.

d. Actual overhead cost was $10,000 variable and $30,500 fixed.

e. Marketing and administrative costs were $115,000.

Requirements
1. Compute the price and efficiency variances for direct materials and direct labor.

2. Journalize the usage of direct materials and the assignment of direct labor, including the related variances.

3. For manufacturing overhead, compute the variable overhead spending and efficiency variances and the fixed overhead spending and volume variances.

4. Journalize the actual manufacturing overhead and the applied manufacturing overhead. Journalize the movement of all production from WIP. Journalize the closing of the manufacturing overhead account.
5. Java intentionally hired more-skilled workers during July. How did this decision affect the cost variances? Overall, was the decision wise?

TUTORIAL PREVIEW

1. Compute the price and efficiency variances for direct materials and direct labor.

Although not required, it is helpful to begin the variance computations by organizing the data:

Direct materials:

Actual price………………………………………                        $0.17 / lb.

Standard price…………………………………...                                  $0.25 / lb.

Actual quantity………………………..…………                     10,000 lbs.

Standard quantity (62,900units × 0.2 lb./unit)        12,580 lbs.

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