Problem

Howard BindingHoward Binding manufactures two types of notebooks: large and small. The lar...

Howard Binding

Howard Binding manufactures two types of notebooks: large and small. The large and small notebooks are made of the same cloth cover (direct materials) but in different quantities. The standard cost sheet for each follows.

 

Large

Small

Cloth covering

3 feet @ $0.30/foot

2 feet @ $0.30/foot

Ring holder

1 @ $0.12 each

1 @ $0.12 each

Direct labor

0.15 hour @ $6.00/hour

0.10 hour @ $6.00/hour

At the beginning of the month, the purchasing department bought 35,000 feet of cloth for $10,850. There were no beginning inventories. During the month, 5,000 large and 8,000 small notebooks were produced. The production records for the month indicate the following actual production quantities:

 

Large

Small

Cloth covering

16,000 feet

15,500 feet

Ring holders

5,000 @ $0.12 each

8,000 @ $0.12 each

Direct labor

800 hours @ $5.80/hour

780 hours @ $6.10/hour

Required:

a. Calculate the cloth covering price variance (i) at purchase and (ii) when the materials are actually used.


b. Discuss why the two price variances calculated in (a) differ. Which is superior (and why)?

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Solutions For Problems in Chapter 12