Horngren's Cost Accounting, Student Value Edition Plus MyLab Accounting with Pearson eText - Access Card Package (16th Edition)

16th Edition

ISBN: 9780134642468

Author: Srikant M. Datar, Madhav V. Rajan

Publisher: PEARSON

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Textbook Question

Chapter 7, Problem 7.28E

Direct materials and direct manufacturing labor variances. Rugged Life, Inc., designs and manufactures fleece quarter-zip jackets. It sells its jackets to brand-name outdoor outfitters in lots of one dozen. Rugged Life’s May 2017 static budget and actual results for direct inputs are as follows:

Static Budget
Number of jacket lots (1 lot = 1 dozen)	300
Per Lot of Jackets:
Direct materials	18 yards at $4.65 per yard = $83.70
Direct manufacturing labor	2.4 hours at $12.50 per hour = $30.00
Actual Results
Number of jacket lots sold	325
Total Direct Inputs:
Direct materials	6,500 yards at $4.85 per yard = $31,525
Direct manufacturing labor	715 hours at $12.60 = $9,009

Rugged Life has a policy of analyzing all input variances when they add up to more than 8% of the total cost of materials and labor in the flexible budget, and this is true in May 2017. The production manager discusses the sources of the variances: “A new type of material was purchased in May. This led to faster cutting and sewing, but the workers used more material than usual as they learned to work with it. For now, the standards are fine.”

1. Calculate the direct materials and direct manufacturing labor price and efficiency variances in May 2017. What is the total flexible-budget variance for both inputs (direct materials and direct manufacturing labor) combined? What percentage is this variance of the total cost of direct materials and direct manufacturing labor in the flexible budget?
2. Comment on the May 2017 results. Would you continue the “experiment” of using the new material?

Definition Definition Measure used to estimate the difference between the budgeted and annual proportion for a specific accounting year. A favorable budget variance refers to positive variances or gains, while unfavorable or negative variances refer to a shortfall in the budget. A budget variance is indicative of the instances where the actual costs incurred are higher or lower than the estimated costs.

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Chapter 7, Problem 7.27E

Chapter 7, Problem 7.29E

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Chapter 7 Solutions

Horngren's Cost Accounting, Student Value Edition Plus MyLab Accounting with Pearson eText - Access Card Package (16th Edition)

Ch. 7 - What is the relationship between management by...Ch. 7 - What are two possible sources of information a...Ch. 7 - Distinguish between a favorable variance and an...Ch. 7 - What is the key difference between a static budget...Ch. 7 - Why might managers find a flexible-budget analysis...Ch. 7 - Describe the steps in developing a flexible...Ch. 7 - List four reasons for using standard costs.Ch. 7 - How might a manager gain insight into the causes...Ch. 7 - List three causes of a favorable direct materials...Ch. 7 - Describe three reasons for an unfavorable direct...

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Solution Summary: The author explains the difference between the budgeted per unit cost of raw material and the actual per-unit cost, and direct labor efficiency variance.

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