Question

Nosemer Company produces engine part for large motors. The company uses a standard cost system for production costing and control. The standard cost sheet for one of its higher volume products (a valve), is given below.

Direct Materials 5 pounds at $4.00	$20.00
Direct Labor 1.4 hours at $10.50	$14.70
Variable overhead 1.4 hours at $6.00	$8.40
Fixed overhead 1.4 hours at $3.00	$4.20
Standard unit cost	$47.30

During the year, Nosemer experienced the following activity relative to the production of valves:

a. Production of valves totaled 25,000 units

b. A total of 13,000 pounds of direct materials was purchased at $3.70 per pound

c. There were 10,000 pounds of direct materials in beginning inventory (carried at $4 per pound). There was no ending inventory

d. The company used 36,500 direct labor hours at a total cost of $392,375

e. Actual fixed overhead totaled $95,000

f. Actual variable overhead totaled $210,000

Nosemer produces all of its valves in a single plant. Normal activity is 22,500 units per year. Standard overhead rates are computed based on normal activity measured in standard direct labor hours.

REQUIRED:

1. Compute the direct materials price and efficiency

2. Compute the direct labor price and efficiency variances.

3. Compute overhead variances

4. Prepare all possible journal entries (assuming a four-variance analysis of overhead variances).

Answer 1

	Actual
Activity	25,000.00
Material Consumed	23,000.00
Material consumed per valve	0.92
Standard consumption	5.00
Favourable variance PU	4.08
Cost of Material Consumed	88100
Cost PU	3.52
Standard Cost	4
Favourable Price PU	0.48
Actual Labour hours	36500
Standard Labout hours	35,000
Negative variance	-1,500
Actual PH labour rate	10.75
Standard Labour rate	10.50
Negative variance	-0.25
Actual Fixed Overhead	95000
Budgeted Fixed Overhead	94500
Negative variance	-500.00
Actual Hours	36500
Standard Hours	35000
Standard Overhead Rate	6
Variable overhead Variance	9000

JV for Variable Overhead Variance

WIP A/C Dr 9000

To variable Overhead exp 9000

Finished Goods A/C dr..........500

To Fixed overhead exp................500