SoundSmart
manufactures headphone cases. During September 2012, the company produced
108,000 cases and recorded the following cost data

P23-35B
Computing standard cost variances and reporting to management [45–60 min]

SoundSmart
manufactures headphone cases. During September 2012, the company produced
108,000 cases and recorded the following cost data:

Standard
Cost Information:

Quantity

Price

Direct materials

2 parts

$ 0.16 per part

Direct labor

0.02 hours

$ 7.00 per hour

Variable manufacturing overhead

0.02 hours

$11.00 per hour

Fixed
manufacturing overhead ($29,400 for static budget volume of 98,000 units and
1,960 hours, or $15 per hour)

Actual
Information:
Direct
materials (193,000 parts @ $0.21 per part = $40,530)
Direct
labor (1,760 hours @ $7.15 per hour = $12,584)
Variable
manufacturing overhead $12,000
Fixed
manufacturing overhead, $30,000

Requirements
1.
Compute the price and efficiency variances for direct materials and direct
labor.
2.
For manufacturing overhead, compute the variable overhead spending and
efficiency variances and the fixed overhead spending and volume variances.
3.
SoundSmart’s management used better quality materials during September.
Discuss
the trade-off between the two direct material variances.

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