Fundamentals of Cost Accounting 3rd Edition by William N. Lanen, Shannon W. Anderson, Michael Maher

Exercise 36

(Appendix used in Part c) Comprehensive Cost Variance Analysis

Wagner, Inc., manufactures truck tires. The following information is available for the last operating period.

• Wagner produced and sold 46,000 tires for $60 each. Budgeted production was 50,000 tires.

• Standard variable costs per tire follow:

Direct materials: 4 pounds at $3	$12.00
Direct labor: 0.8 hours at $13.50	10.80
Variable production overhead: 0.18 machine-hours at $15 per hour	2.70
Total variable costs	$25.50

• Fixed production overhead costs:

Monthly budget

$1,000,000

• Fixed overhead is applied at the rate of $20 per tire.

• Actual production costs:

Direct materials purchased and used: 192,000 pounds at $2.70	$ 518,400
Direct labor: 35,200 hours at $13.80	485,760
Variable overhead: 8,640 machine-hours at $15.30 per hour	132,192
Fixed overhead	1,075,000

Required

a. Prepare a cost variance analysis for each variable cost for Wagner.

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b. Prepare a fixed overhead cost variance analysis.

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c. Prepare the journal entries to record the activity for the last period using standard costing. Assume that all variances are closed to Cost of Goods Sold at the end of the operating period..

Step 1 of 18

Cost accounting

This system is designed for inhouse or internal managers and their decision making. Cost accounting information is not needed for comparison with other companies. This information is commonly used in financial accounting also, but it is primarily used by company managers for their decision making. It is important that cost accounting information is relevant for the decision making of the manager.