SoundSmart manufactures headphone cases. During September 2012, the company produced 108,000 cases and recorded the following cost data:
Standard Cost Information:
|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)
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
- Compute the price and efficiency variances for direct materials and direct labor.
- For manufacturing overhead, compute the variable overhead spending and efficiency variances and the fixed overhead spending and volume variances.
- SoundSmart’s management used better quality materials during September.
Discuss the trade-off between the two direct material variances.