Chapter 23, Problem 6AP

1.

To determine

Prepare journal entries to record the company’s costs and variances for the month of December.

2.

Identify the favorable variance that attracts manager using the management by exception and also explain the action(s) the manager must consider.

To determine

Manager using management by expectation will first identify the largest variances, attempt to uncover their cause and then later implement certain action that helps in correcting them. The smaller variances are used after major problems are dealt.

 Variance like materials quantity variance, the direct labor efficiency variance, and the two overhead variances has an occurrence of large variance amount. The manager should identify the reason for using more of materials and less labor hours by the production department. The controllable variance should be separated into components for individual cost items as to find out the items that have deviated from the expected results. After larger variance amounts are explained and after necessary actions being taken, the manager should seek explanation for the less significant materials price variance from the purchasing department and the direct labor rate variance from the personnel department.