16th Edition

ISBN: 9780134475950

Author: Datar

Publisher: PEARSON CO

Concept explainers

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 …

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 t…

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Textbook Question

Chapter 7, Problem 7.29E

Price and efficiency variances, journal entries. The Schuyler Corporation manufactures lamps. It has set up the following standards per finished unit for direct materials and direct manufacturing labor:

Direct materials: 10 lb. at $4.50 per lb.	$45.00
Direct manufacturing labor: 0.5 hour at $30 per hour	15.00

The number of finished units budgeted for January 2017 was 10,000; 9,850 units were actually produced. Actual results in January 2017 were as follows:

Direct materials: 98,055 lb. used
Direct manufacturing labor: 4,900 hours	$154,350

Assume that there was no beginning inventory of either direct materials or finished units.

During the month, materials purchased amounted to 100,000 lb., at a total cost of $465,000. Input price variances are isolated upon purchase. Input-efficiency variances are isolated at the time of usage.

1. Compute the January 2017 price and efficiency variances of direct materials and direct manufacturing labor.
2. Prepare journal entries to record the variances in requirement 1.
3. Comment on the January 2017 price and efficiency variances of Schuyler Corporation.
4. Why might Schuyler calculate direct materials price variances and direct materials efficiency variances with reference to different points in time?

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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Chapter 7 Solutions

EBK HORNGREN'S COST ACCOUNTING

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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