David James is a cost accountant and business analyst for Doorknob Design Company (DDC), which manufactures expensive brass doorknobs. DDC uses two direct cost categories: direct materials and direct manufacturing labor. James feels that manufacturing overhead is most closely related to material usage. Therefore, DDC allocates manufacturing overhead to production based upon pounds of materials used. At the beginning of 2012, DDC budgeted annual production of 400,000 doorknobs and adopted the following standards for each doorknob: Actual results for April 2012 were as follows: Budgeted number of output units: 888 Planned allocation rate: 2 machine-hours per unit Actual number of machine-hours used: 1,824 Static-budget variable manufacturing overhead costs: $71,040 Input Cost/Doorknob Direct materials (brass) 0.3 lb. @ $10/lb. $ 3.00 Direct manufacturing labor 1.2 hours @ $20/hour 24.00 Manufacturing overhead: Variable $6/lb. 0.3 lb. * 1.80 Fixed $15/lb. 0.3 lb. * ƒƒ4.50 Standard cost per doorknob $33.30 Production 35,000 doorknobs Direct materials purchased 12,000 lb. at $11/lb. Direct materials used 10,450 lb. Direct manufacturing labor 38,500 hours for $808,500 Variable manufacturing overhead $64,150 Fixed manufacturing overhead $152,000 Manufacturing Overhead Actual Results Flexible Budget Allocated Amount Variable $ 76,608 $ 76,800 $ 76,800 Fixed 350,208 348,096 376,320 Required 1. For the month of April, compute the following variances, indicating whether each is favorable (F) or unfavorable (U): a. Direct materials price variance (based on purchases) b. Direct materials efficiency variance c. Direct manufacturing labor price variance d. Direct manufacturing labor efficiency variance
Process Costing
Process costing is a sort of operation costing which is employed to determine the value of a product at each process or stage of producing process, applicable where goods produced from a series of continuous operations or procedure.
Job Costing
Job costing is adhesive costs of each and every job involved in the production processes. It is an accounting measure. It is a method which determines the cost of specific jobs, which are performed according to the consumer’s specifications. Job costing is possible only in businesses where the production is done as per the customer’s requirement. For example, some customers order to manufacture furniture as per their needs.
ABC Costing
Cost Accounting is a form of managerial accounting that helps the company in assessing the total variable cost so as to compute the cost of production. Cost accounting is generally used by the management so as to ensure better decision-making. In comparison to financial accounting, cost accounting has to follow a set standard ad can be used flexibly by the management as per their needs. The types of Cost Accounting include – Lean Accounting, Standard Costing, Marginal Costing and Activity Based Costing.
David James is a cost accountant and business analyst for Doorknob Design Company (DDC), which manufactures expensive brass doorknobs. DDC
uses two direct cost categories: direct materials and direct manufacturing labor. James feels that manufacturing
At the beginning of 2012, DDC budgeted annual production of 400,000 doorknobs and adopted the following standards for each doorknob:
Actual results for April 2012 were as follows:
Budgeted number of output units: 888
Planned allocation rate: 2 machine-hours per unit
Actual number of machine-hours used: 1,824
Static-budget variable
Input Cost/Doorknob
Direct materials (brass) 0.3 lb. @ $10/lb. $ 3.00
Direct manufacturing labor 1.2 hours @ $20/hour 24.00
Manufacturing overhead:
Variable $6/lb. 0.3 lb. * 1.80
Fixed $15/lb. 0.3 lb. * ƒƒ4.50
Standard cost per doorknob $33.30
Production 35,000 doorknobs
Direct materials purchased 12,000 lb. at $11/lb.
Direct materials used 10,450 lb.
Direct manufacturing labor 38,500 hours for $808,500
Variable manufacturing overhead $64,150
Fixed manufacturing overhead $152,000
Manufacturing Overhead Actual Results Flexible Budget Allocated Amount
Variable $ 76,608 $ 76,800 $ 76,800
Fixed 350,208 348,096 376,320
Required 1. For the month of April, compute the following variances, indicating whether each is favorable (F) or
unfavorable (U):
a. Direct materials price variance (based on purchases)
b. Direct materials efficiency variance
c. Direct manufacturing labor price variance
d. Direct manufacturing labor efficiency variance
e. Variable manufacturing overhead spending variance
f. Variable manufacturing overhead efficiency variance
g. Production-volume variance
h. Fixed manufacturing overhead spending variance
2. Can James use any of the variances to help explain any of the other variances? Give examples
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