Answered: Zeke's Bikes uses a standard cost…

FINANCIAL ACCOUNTING

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

Section: Chapter Questions

Problem 1Q

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Question

Zeke's Bikes uses a standard cost system and provides the following information:

Standards:

3 lbs of material per unit at a cost of $1.15 per pound.
2 direct labor hours per unit costing $11.25 per hour.

Actual:

2,500 lbs of material were purchased at a cost of $1.20 per pound.
Employees worked 1,800 hours and were paid $10.75 per hour.

Zeke's Bikes produced a 1,000 bikes this period.

1. Calculate the direct materials cost variance and the direct materials efficiency variance.

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2. Calculate the direct labor cost variance and the direct labor efficiency variance.
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Direct
Materials
Cost
Variance
Direct
Materials
Efficiency
Variance
=
=
=
Direct
Labor
Cost
Variance
Favorable or
Unfavorable
Direct
Labor
Efficiency
Variance
Favorable or
Unfavorable
Favorable or
Unfavorable
Favorable or
Unfavorable

Definition Definition System of assigning an estimated cost to the product (instead of the actual cost) so that the product cost can be determined well in advance and the pricing of the product can be done on time. Since the actual cost cannot be predicted at the initial stage of the production process, the estimated cost is recorded in the books. Any deviation of the estimated cost of the actual cost is adjusted in the books at the end of the period.

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