Deliverable Length: 500–1000 Words - Jack Partnership Manufa
Deliverable Length500 1000 Wordsajack Partnership Manufactures Jackh
Deliverable Length: 500-1,000 words AJack Partnership manufactures jackhammers. AJack Partnership is looking for guidance in the variances of its standard cost system. It would like you to assist in understanding material price, material quantity, rate, efficiency, and overhead variances. The standard cost card information for unit of product is below. Standard cost card per unit of product Direct materials: 4 pounds at $9.00 per pound of steel $36.00 Direct labor: 2.0 direct labor hours at $20.00 per hour 40.00 Variable overhead: 100% of a direct labor hour at $10.00 per hour 20.00 Fixed overhead: 100% of a direct labor hour at $20.00 per hour 40.00 Standard cost per unit $136.00 The following information is available in the year just finished: AJack Partnership manufactured 10,000 jackhammers during the year. The total purchases of steel in the year at a cost of $8.75 per pound were 45,000 pounds. All of the material was used to manufacture the 10,000 jackhammers. There was no beginning or ending inventory. The material was purchased on January 15, 20XX AJack Partnership incurred 21,000 direct labor hours at $19.50 per hour. During the year, one production order was issued on February 15 20XX, number 789, for 10,000 jackhammers. Actual variable overhead was $210,000. Actual fixed overhead was $405,000. Assignment Guidelines: Material Compute the material price variance for Jan 15, 20XX. Provide the accounting entry for the price variance. Labor Compute the labor rate variance. Compute the labor efficiency variance. Provide the accounting entry for the labor rate and efficiency variances. Overhead Compute the variable overhead rate variance. Compute the variable overhead efficiency variance. Provide the accounting entry for the overhead rate and efficiency variances.
Paper For Above instruction
Introduction
Standard costing is a crucial aspect of managerial accounting, used to streamline cost control and facilitate variance analysis. The variances—material price, material quantity, labor rate, labor efficiency, overhead rate, and overhead efficiency—provide insights into operational performance and cost management effectiveness. In this paper, we analyze the variances for AJack Partnership’s production of jackhammers, with a focus on material price variance, labor rate and efficiency variances, and variable overhead rate and efficiency variances, supported by relevant accounting entries.
Material Price Variance
The material price variance evaluates the difference between actual and standard costs of materials purchased, given the actual purchase price. The standard cost per pound is $9.00, but the actual purchase price was $8.75 per pound. The total steel purchased amounted to 45,000 pounds, all used in production, with no beginning or ending inventory.
Calculation:
Material Price Variance = (Actual Price - Standard Price) × Actual Quantity Purchased
= ($8.75 - $9.00) × 45,000 pounds
= -$0.25 × 45,000
= -$11,250
This negative variance indicates a cost savings, as the actual purchase price was below the standard cost.
Accounting Entry:
The material price variance is recorded as a debit to Materials Control and a credit to Materials Price Variance account:
```plaintext
Dr. Materials Control $ (45,000 lbs × $9.00) = $405,000
Cr. Materials Inventory $ (45,000 lbs × $8.75) = $393,750
Cr. Materials Price Variance $11,250
```
This entry adjusts inventory at standard cost and recognizes the favorable price variance.
Labor Variance Analysis
Labor Rate Variance:
The labor rate variance compares the actual hourly wage to the standard wage, multiplied by actual hours worked.
Calculation:
Labor Rate Variance = (Actual Rate - Standard Rate) × Actual Hours
= ($19.50 - $20.00) × 21,000 hours
= -$0.50 × 21,000
= -$10,500
The negative variance signifies labor cost savings due to wages being lower than the standard rate.
Labor Efficiency Variance:
The efficiency variance assesses the difference in labor hours worked relative to standard hours for actual output.
Standard hours for 10,000 units = 10,000 units × 2 hours/unit = 20,000 hours.
Actual hours = 21,000 hours.
Calculation:
Labor Efficiency Variance = (Standard Hours – Actual Hours) × Standard Rate
= (20,000 – 21,000) × $20
= -1,000 × $20
= -$20,000
The unfavorable variance indicates that more labor hours were used than planned, leading to increased labor costs.
Accounting Entries:
The variances are recorded as:
```plaintext
Dr. Wages Expense $420,000 (21,000 hours × $20)
Cr. Wages Payable $409,500 (21,000 hours × $19.50)
Cr. Labor Rate Variance $10,500
Cr. Labor Efficiency Variance $20,000
```
Note: The variances are typically closed to variance accounts, but they are presented here for clarity.
Overhead Variance Analysis
Variable Overhead Rate Variance:
This measures the difference between actual variable overhead incurred and the expected variable overhead at actual hours.
Standard variable overhead rate = $10.00/hour.
Actual variable overhead = $210,000.
Actual hours = 21,000 hours.
Calculation:
Variable Overhead Rate Variance = (Actual Rate – Standard Rate) × Actual Hours
= ($210,000 / 21,000 hours – $10) × 21,000
= ($10 – $10) × 21,000
= $0
Thus, the rate variance is zero, indicating the actual variable overhead rate matched the standard.
Variable Overhead Efficiency Variance:
Evaluates whether the variable overhead spent aligns with the efficiency of labor hours used.
Expected variable overhead: 20,000 hours × $10/hour = $200,000.
Actual variable overhead = $210,000.
Calculation:
Variable Overhead Efficiency Variance = (Standard Hours – Actual Hours) × Standard Rate
= (20,000 – 21,000) × $10
= -1,000 × $10
= -$10,000
The unfavorable efficiency variance suggests higher overhead costs due to less efficient production.
Accounting Entries:
The overhead variances are typically recorded as:
```plaintext
Dr. Variable Overhead Expense $210,000
Cr. Variable Overhead Control $210,000
Cr. Variable Overhead Rate Variance $0
Cr. Variable Overhead Efficiency Variance $10,000
```
Note: The actual overhead control account reflects incurred costs, while variances capture differences from standard expectations.
Conclusion
Effective analysis of variances enables AJack Partnership to identify deviations from standard costs, facilitating corrective actions to improve cost management and operational efficiency. The favorable material price variance reduced material costs, while the unfavorable labor efficiency and overhead efficiency variances highlighted areas for potential productivity improvements. Proper recording of these variances ensures accurate cost control and financial reporting.
References
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