Asahi USA, Inc., based in Denver, Colorado, is a subsidiary of a Japanese company manufacturing specialty tools. Asahi USA employs a standard cost system. Following are the standards per unit of one of its products, tool KJ79. This tool requires a special chrome steel as a direct material.   Standard Quantity Standard Price Standard Cost Direct materials 8 pounds $18 per pound $144 Direct Labor 2.5 hours $20 per hour $50 Total     $194 During November, Asahi USA started and completed job KJX86 to manufacture 1,900 units of tool KJ79. It purchased and used 14,250 pounds of the special chrome steel for tool KJ79 at a total cost of $270,750. The total direct labor charged to job KJX86 was $87,500. Job KJX86 required 5,000 direct labor hours. Required For job KJX86, compute the following and indicate whether the variances are favorable or unfavorable: Direct material price variance Direct material quantity variance Direct labor rate variance Direct labor efficiency variance Provide a plausible explanation for the variances.

FINANCIAL ACCOUNTING
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ISBN:9781259964947
Author:Libby
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Chapter1: Financial Statements And Business Decisions
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Asahi USA, Inc., based in Denver, Colorado, is a subsidiary of a Japanese company manufacturing specialty tools. Asahi USA employs a standard cost system. Following are the standards per unit of one of its products, tool KJ79. This tool requires a special chrome steel as a direct material.

 

Standard Quantity

Standard Price

Standard Cost

Direct materials

8 pounds

$18 per pound

$144

Direct Labor

2.5 hours

$20 per hour

$50

Total

 

 

$194

During November, Asahi USA started and completed job KJX86 to manufacture 1,900 units of tool KJ79. It purchased and used 14,250 pounds of the special chrome steel for tool KJ79 at a total cost of $270,750. The total direct labor charged to job KJX86 was $87,500. Job KJX86 required 5,000 direct labor hours.

Required

For job KJX86, compute the following and indicate whether the variances are favorable or unfavorable:

  1. Direct material price variance
  2. Direct material quantity variance
  3. Direct labor rate variance
  4. Direct labor efficiency variance

Provide a plausible explanation for the variances.

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