Business Wear Fashions manufactures one type of women’s jacket, production in jobs to fill each customer order. These jackets are supplied to various department stores, and Business Wear sews the label of each store onto the jackets.
During November, Business Wear worked on three orders. The job cost records disclose the following data:
The following additional information is available:
• Business Wear purchased 90 000 metres of material during November at a cost of $990 000.
• Direct labour during November amounted to $660 000. According to payroll records, production employees were paid $30 per hour.
• There was no work in process on 1 November. During November, jobs AB and CD were completed. All material was issued for job MN, which was 80 per cent complete as to direct labour.
• The standard costs for a jacket are as follows:
Required:
1. Construct an Excel® spreadsheet that includes:
(a) A schedule calculating the standard cost of jobs AB, CD and MN for November.
(b) The following variances for November and indicate whether each variance is favourable or unfavourable:
(i) Direct material price variance.
(ii) Direct material quantity variance for each job and in total.
(iii) Direct labour efficiency variance for each job and in total.
(iv) Direct labour rate variance for each job and in total.
2. Prepare journal entries to record each of the following events:
(a) Purchase of material.
(b) Incurrence of direct labour cost and direct labour variances for November.
(c) Addition of direct material to work in process inventory, and direct material variances for November.
3. Use the spreadsheet from requirement 1 to demonstrate the effects of the standard quantity of material decreasing to 3 metres per jacket and the standard direct labour rate increasing to $32.00 per hour.
4. Discuss possible causes for each of the variances that you calculated under requirement 1(6). Consider each variance separately. Also, consider possible interactions between variances?
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