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

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.
  1. For manufacturing overhead, compute the variable overhead spending and efficiency variances and the fixed overhead spending and volume variances.
  1. SoundSmart’s management used better quality materials during September.

Discuss the trade-off between the two direct material variances.

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