Newport Beach Manufacturing Corporation uses a standard cost system that records raw materials at actual cost, records materials price variances at the time that raw materials are issued to work , and prorates all variances at year-end. Variances associated with direct materials are prorated based on the direct materials balances in the appropriate accounts, and variances associated with direct labor are prorated based on the direct labor balances in the appropriate accounts. The following information is available for Newport Beach for the year ended December 31: Raw materials inventory at December 31 . . . . . . . . . . . . . . . . . . . . . . . . . $ 65,000 Finished goods inventory at December 31: Direct materials . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 87,000 Direct labor . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 130,500 Applied factory overhead . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 104,400 Cost of goods sold for the year ended December 31: Direct materials . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 348,000 Direct labor . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 739,500 Applied factory overhead . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 591,600 Materials quantity variance (favorable) . . . . . . . . . . . . . . . . . . . . . . . . . . . 15,000 Materials price variance (unfavorable) . .......................... 10,000 Labor efficiency variance (favorable) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5,000 Labor rate variance (unfavorable) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20,000 Factory overhead applied . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 696,000 There were no beginning inventories and no ending work in process inventory. Required: Calculate the following: 1. Amount of materials price variance to be prorated to finished goods inventory at December 31. (Hint: You must first determine the ratio of direct materials cost in the ending finished goods inventory.) 2. Total amount of direct materials cost in the finished goods inventory at December 31, after all variances have been prorated. 3. Total amount of direct labor cost in the finished goods inventory at December 31, after all variances have been prorated. 4. Total cost of goods sold for the year ended December 31, after all variances have been prorated
Variance Analysis
In layman's terms, variance analysis is an analysis of a difference between planned and actual behavior. Variance analysis is mainly used by the companies to maintain a control over a business. After analyzing differences, companies find the reasons for the variance so that the necessary steps should be taken to correct that variance.
Standard Costing
The standard cost system is the expected cost per unit product manufactured and it helps in estimating the deviations and controlling them as well as fixing the selling price of the product. For example, it helps to plan the cost for the coming year on the various expenses.
Newport Beach Manufacturing Corporation uses a
system that records raw materials at actual cost, records materials
price variances at the time that raw materials are issued to work
, and prorates all variances at year-end. Variances
associated with direct materials are prorated based on the direct
materials balances in the appropriate accounts, and variances
associated with direct labor are prorated based on the direct labor
balances in the appropriate accounts. The following information
is available for Newport Beach for the year ended December 31:
Raw materials inventory at December 31 . . . . . . . . . . . . . . . . . . . . . . . . . $ 65,000
Finished goods inventory at December 31:
Direct materials . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 87,000
Direct labor . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 130,500
Applied factory overhead . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 104,400
Cost of goods sold for the year ended December 31:
Direct materials . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 348,000
Direct labor . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 739,500
Applied factory overhead . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 591,600
Materials quantity variance (favorable) . . . . . . . . . . . . . . . . . . . . . . . . . . . 15,000
Materials price variance (unfavorable) . .......................... 10,000
Labor efficiency variance (favorable) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5,000
Labor rate variance (unfavorable) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20,000
Factory overhead applied . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 696,000
There were no beginning inventories and no ending work in
process inventory.
Required:
Calculate the following:
1. Amount of materials price variance to be prorated to finished
goods inventory at December 31. (Hint: You must first determine the ratio of direct materials cost in the ending finished
goods inventory.)
2. Total amount of direct materials cost in the finished goods
inventory at December 31, after all variances have been
prorated.
3. Total amount of direct labor cost in the finished goods inventory at December 31, after all variances have been prorated.
4. Total cost of goods sold for the year ended December 31,
after all variances have been prorated
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