Chapter 10, Problem 47P

Springsteen Company manufactures guitars. The company uses a standard, job-order cost-accounting system in two production departments. In the Construction Department, the wooden guitars are built by highly skilled craftsmen and coated with several layers of lacquer. Then the units are transferred to the Finishing Department, where the bridge of the guitar is attached and the strings are installed. The guitars also are tuned and inspected in the Finishing Department. The diagram below depicts the production process.

Each finished guitar contains seven pounds of veneered wood. In addition, one pound of wood is typically wasted in the production process. The veneered wood used in the guitars has a standard price of $12 per pound. The other parts needed to complete each guitar, such as the bridge and strings, cost $15 per guitar. The labor standards for Springsteen’s two production departments are as follows:

Construction Department: 6 hours of direct labor at $20 per hour

Finishing Department: 3 hours of direct labor at $15 per hour

The following pertains to the month of July.

1. 1. There were no beginning or ending work-in-process inventories in either production department.
2. 2. There was no beginning finished-goods inventory.
3. 3. Actual production was 500 guitars, and 300 guitars were sold on account for $400 each.
4. 4. The company purchased 6,000 pounds of veneered wood at a price of $12.50 per pound.
5. 5. Actual usage of veneered wood was 4,500 pounds of the wood purchased during July.
6. 6. Enough parts (bridges and strings) to finish 600 guitars were purchased at a cost of $9,000.
7. 7. The Construction Department used 2,850 direct-labor hours. The total direct-labor cost in the Construction Department was $54,150.
8. 8. The Finishing Department used 1,570 direct-labor hours. The total direct-labor cost in that department was $25,120.
9. 9. There were no direct-material variances in the Finishing Department.

Required:

1. 1. Prepare a schedule that computes the standard costs of direct material and direct labor in each production department.
2. 2. Prepare three exhibits that compute the July direct-material and direct-labor variances in the Construction Department and the July direct-labor variances in the Finishing Department. (Refer to Exhibits 10–2, 10–3, and 10–4 for guidance.)
3. 3. Prepare a cost variance report for July similar to that shown in Exhibit 10–5. Springsteen Company investigates all variances greater than $5,000 or 5%.