Chapter 7: Chapter 7

(CMA, heavily adapted) Oyster Bay Surfboards manufactures fiberglass surfboards. The standard cost of direct materials and direct manufacturing labor is \(\$ 248\) per board. This includes 35 pounds of direct materials, at the budgeted price of \(\$ 3\) per pound, and 11 hours of direct manufacturing labor, at the budgeted rate of \(\$ 13\) per hour. Following are additional data for the month of July: There were no beginning inventories. 1\. Compute direct manufacturing labor variances for July. 2\. Compute the actual pounds of direct materials used in production in July. 3\. Calculate the actual price per pound of direct materials purchased. 4\. Calculate the direct materials price variance.

What is the key difference between a static budget and a flexible budget?

Collegiate Corn Hole is a small business that Zach Morris developed while in college. He began building wooden corn hole game sets for friends, hand painted with college colors and logos. As demand grew, he hired some workers and began to manage the operation. Collegiate Corn Hole maintains two departments: construction and painting. In the construction department, the games require wood and labor. Collegiate Corn Hole has some employees who have been with the company for a very long time and others who are new and inexperienced. Collegiate Corn Hole uses standard costing for the game sets. Zach expects that a typical set should take 4 hours of labor in the construction department, and the standard wage rate is \(\$ 10.00\) per hour. An average set uses 24 square feet of wood, allowing for a certain amount of scrap. Because of the nature of the wood, workers must work around flaws in the materials. Zach shops around for good deals and expects to pay \$5.00 per square feet. Zach does not store inventory, and buys the wood as he receives an order. For the month of September, Zach's workers produced 60 corn hole sets using 250 hours and 1,500 square feet of wood. Zach bought wood for \(\$ 7.350\) (and used the entire quantity) and incurred labor costs of \(\$ 2,375\). 1\. For the construction department, calculate the price and efficiency variances for the wood and the price and efficiency variances for direct manufacturing labor. 2\. Record the journal entries for the variances incurred. 3\. Discuss logical explanations for the combination of variances that the construction department of Collegiate Corn Hole experienced.

Why might managers find a flexible-budget analysis more informative than a static-budget analysis?

List four reasons for using standard costs.

How might a manager gain insight into the causes of a flexible-budget variance for direct materials?

List three causes of a favorable direct materials price variance.