Business Environment and Concepts

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AJack Partnership manufactures jackhammers. AJack Partnership is looking for guidance in the variances of its standard cost system. It would like you to assist in understanding material price, material quantity, rate, efficiency, and overhead variances.

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The standard cost card information for unit of product is below.

Standard cost card per unit of product

Direct materials: 4 pounds at $9.00 per pound of steel

$36.00

Direct labor: 2.0 direct labor hours at $20.00 per hour

40.00

Variable overhead: 100% of a direct labor hour at $10.00 per hour

20.00

Fixed overhead: 100% of a direct labor hour at $20.00 per hour

40.00

Standard cost per unit

$136.00

The following information is available in the year just finished:

  • AJack Partnership manufactured 10,000 jackhammers during the year.
  • The total purchases of steel in the year at a cost of $8.75 per pound were 45,000 pounds.
  • All of the material was used to manufacture the 10,000 jackhammers.
  • There was no beginning or ending inventory.
  • The material was purchased on January 15, 20XX
  • AJack Partnership incurred 21,000 direct labor hours at $19.50 per hour.
  • During the year, one production order was issued on February 15 20XX, number 789, for 10,000 jackhammers.
  • Actual variable overhead was $210,000.
  • Actual fixed overhead was $405,000.

Assignment Guidelines:

Material

  1. Compute the material price variance for Jan 15, 20XX.
  2. Provide the accounting entry for the price variance.

Labor

  1. Compute the labor rate variance.
  2. Compute the labor efficiency variance.
  3. Provide the accounting entry for the labor rate and efficiency variances.

Overhead

  1. Compute the variable overhead rate variance.
  2. Compute the variable overhead efficiency variance.
  3. Provide the accounting entry for the overhead rate and efficiency variances.
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