P23-28A Java manufactures coffee mugs that it sells to other companies for customizing with

Price: $3.99


P23-28A Computing and journalizing standard cost variances [45 min]

Java manufactures coffee mugs that it sells to other companies for customizing with
their own logos. Java prepares flexible budgets and uses a standard cost system to
control manufacturing costs. The standard unit cost of a coffee mug is based on static
budget volume of 60,200 coffee mugs per month:

Direct materials (0.2 lbs @ $0.25 per lb)
Direct labor (3 minutes @ $0.12 per minute)
Manufacturing overhead:
Variable (3 minutes @ $0.05 per minute) $ 0.15
$ 0.05
0.36
0.42 0.57
$ 0.98

Actual cost and production information for July 2012 follow:

Requirements

1. Compute the price and efficiency variances for direct materials and direct labor.

2. Journalize the usage of direct materials and the assignment of direct labor,
including the related variances.

3. For manufacturing overhead, compute the variable overhead spending and efficiency
variances and the fixed overhead spending and volume variances.

4. Journalize the actual manufacturing overhead and the applied manufacturing
overhead. Journalize the movement of all production from WIP. Journalize the
closing of the manufacturing overhead account.

5. Java intentionally hired more-skilled workers during July. How did this decision
affect the cost variances? Overall, was the decision wise?

Actual production and sales were 62,900 coffee mugs.

Actual direct materials usage was 10,000 lbs., at an actual price of $0.17 per lb.

Actual direct labor usage was 202,000 minutes at a total cost of $30,300.

Actual overhead cost was $10,000 variable and $30,500 fixed.

Marketing and administrative costs were $115,000.