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
- 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.
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