Answer:
Debit to Bad Debt Expense for $7,700
Explanation:
Based on the information given we were told that company's accounts receivable shows the estimate of uncollectible accounts totals of the amount of $6,400 while the Allowance for Doubtful Accounts has the amount of $1,300 as the debit balance. This means that the adjustment to record the bad debt expense for the period will require a
Debit to Bad Debt Expense for $7,700 Calculate as:
Dr Bad Debts 7700
(6300+1300)
Cr To Allowance for Doubtful Accounts 7700
In the month of November, Carla Vista Co. Inc. wrote checks in the amount of $9,565. In December, checks in the amount of $11,465 were written. In November, $8,825 of these checks were presented to the bank for payment, and $10,285 in December. What is the amount of outstanding checks at the end of November? At the end of December?
Checks written in November $9,750
Less: Checks paid by bank in November $8,800
Checks outstanding at the end of November $950
Add: Checks written in December $11,762
Less: Checks paid by bank in December 10,889
Checks outstanding at the end of December $1,823
hope this helps!
- a random freshman
Consider a service company that provides carpet cleaning and uses straight-line depreciation. Classify the cost of the depreciation on the carpet cleaning machines.
a. Fixed
b. Indirect
Answer:
Both :
a. Fixed and,
b. Indirect
Explanation:
The depreciation expense on production machinery form part of the product or service cost.
The cost however, can not be traced to the product or service that is why it is an Indirect cost as opposed to the direct costs which can be traced directly on the product or service.
Straight line method charges a fixed amount of depreciation thus the depreciation is a fixed charge.
When you send off the proposal three days later, you inadvertently learn from the client that he never received any correspondence from your coworker. "What dimension of professional behavior did your coworker violate when with the prospective client?
The question is incomplete:
You work for AdSmart, a marketing research firm. You and a new coworker are meeting a potential client for lunch. You have several morning meetings on the same day as the lunch meeting, so you arrange to meet your coworker and the potential client at 12:15 p.m. at the restaurant. You arrive five minutes early, and the prospective client arrives shortly thereafter. You both wait in the lobby until 12:35 p.m. when you decide to be seated. You check your smart phone and see no received communications from your colleague. Finally, at 12:45 p.m., your coworker arrives.
During the lunch, your coworker tells several white lies and reveals information regarding your boss that should have been kept confidential. The prospective client doesn't seem to notice these indiscretions, however, when your coworker begins to badmouth his former employer, a competitor of AdSmart, the client appears ill at ease.
Despite the rough start to the lunch meeting, all ends well. You believe that with the appropiate follow-up, the potential client will become one of the firm's more lucrative partnerships. Once you are back at the office, you debrief with your coworker and discuss the next steps. You decide to take on the task of putting together the proposal the client has requested, and your colleague agrees to send a follow-up note thanking the client and indicating that the proposal will arrive within the next week.
When you send off the proposal three days later, you inadvertently learn from the client that he never received any correspondence from your coworker. "What dimension of professional behavior did your coworker violate when with the prospective client?
Answer:
Courtesy and respect
Explanation:
The dimension of professional behavior that your coworker violated with the prospective client is courtesy and respect. He violated courtesy because it is about being polite and he was not polite because he arrived late to the meeting and he didn't let you know about it.
Also, he violated responsibility because it is about doing the things that you are in charge of and he was in charge of sending a follow-up note and he didn't do it.
Many companies secure financing from various sources with various payback periods. Not all funding sources are the same, and in fact, some can come with a pretty high cost to the firm. These costs could include high interest rates, long payback periods, and increased ownership in the firm which could result in lost control.
Please analyze the funding options listed, and determine if the option is usually a short-term or long-term strategy.
a. Line of credit
b. Commercial paper
c. Trade credit Bank loan of 10 months
d. Bond
e. Stock
f. Bank loan of 20 months
Answer:
a. Line of credit - Long-term strategy
A line of credit is a long-term strategy because businesses obtain lines of credit for their use over long periods of time. The particular characteristic is that a line of credit is only used when the business decides to do so, so it works almost like a credit card.
b. Commercial paper - Short-term strategy
Commercial paper is a short-term debt that is issued by firms when they have problems to pay operating expenses. They are unsecured, and pay a specific amount of interest.
c. Trade credit Bank loan of 10 months - Short-term strategy
In financial accounting, loans that last for less than a year are categorized as short-term liabilities, therefore, a trade credit bank loan of 10 months is a short-term strategy.
d. Bond - Long-term strategy
While some bonds are issued for the short-term, the majority of them are issued for the long-term, with some of them lasting 10 years or more.
e. Stock - Long-term strategy
Buying or issuing stock is also a long-term strategy, specially because the dividend of the stock is only paid out once every year, unlike other debt instruments that pay interest immediately.
f. Bank loan of 20 months - Long-term strategy
A bank loan of more than 1 years is considered a long-term liability in financial accounting, therefore, a bank loan of 20 months is part of a long-term strategy.
Analyzing the given funding options and placing them in their right categories would be:
A. Line of credit - Long-term strategy B. Commercial paper - Short-term strategy C. Trade credit Bank loan of 10 months - Short-term strategy D. Bond - Long-term strategy E. Stock - Long-term strategy F. Bank loan of 20 months - Long-term strategyA long term strategy is one which financial institutions use to secure their assets for the foreseeable future while a short term strategy is used for short term gains on stocks and finances.
With this in mind, we can see that there are different funding options which are short or long term as the case may be, which depends on the amount of profit which the business wants to accrue.
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Parton and Sons is a law firm that uses activity-based costing. Classify these activities as value-added or non-value-added:
a. Taking appointments
b. Reception
c. Meeting with clients
d. Bookkeeping
e. Court time
f. Meeting with opposing attorneys
g. Billing
h. Advertising
Answer:
The answer is:
A - Non-value-added
B - Non-value-added
C- Value-added
D- Non-value-added
E - Value-added
F - Value-added
G - Non-value-added
H- Non-value-added
Explanation:
In activity-based costing, Non-value-added activities are activities that add costs to ones product without enhancing the value while value-added is a cost that enhance the quality of a product or service.
A - Non-value-added
B - Non-value-added
C- Value-added
D- Non-value-added
E - Value-added
F - Value-added
G - Non-value-added
H- Non-value-added
Smiling Elephant, Inc., has an issue of preferred stock outstanding that pays a $6.10 dividend every year, in perpetuity. If this issue currently sells for $80.65 per share, what is the required return?
Answer:
7.56%
Explanation:
Calculation for the required return for Smiling Elephant
Using this formula
Required return =D/P0
Where,
D=$6.10
P0=$80.65
Let plug in the formula
Required return =$6.10/$80.65
Required return =0.0756×100
Required return =7.56%
Therefore the Required return for Smiling Elephant Inc will be 7.56%
Wang Co. manufactures and sells a single product that sells for $450 per unit; variable costs are $270 per unit. Annual fixed costs are $800,000. Current sales volume is $4,200,000. Compute the contribution margin ratio.
Answer:
contribution margin ratio= 0.4
Explanation:
Giving the following information:
Selling price per unit= $450
Unitary variable costs=$270
To calculate the contribution margin ratio, we need to use the following formula:
contribution margin ratio= contribution margin/selling price
contribution margin ratio= (450 - 270) / 450
contribution margin ratio= 0.4
The rate of return on the common stock of Lancaster Woolens is expected to be 18 percent in a boom economy, 8 percent in a normal economy, and only 2 percent in a recessionary economy. The probabilities of these economic states are 12 percent for a boom and 10 percent for a recession. What is the variance of the returns on this common stock
Answer:
Variance of the return on this common stock is 0.15%
Explanation:
Note: See the attached excel file for the calculation of the variance of the returns on this common stock.
Note that the probability of a normal economy can be obtained as follows:
Probability of normal economy = 100% - Probability of a boom - Probability of a recession = 100% - 12% - 10% = 78%
These probabilities are used in the attached excel file.
Data for 2021 were as follows: PBO, January 1, $243,000 and December 31, $278,000; pension plan assets (fair value) January 1, $186,000, and December 31, $233,000. The projected benefit obligation was underfunded at the end of 2021 by:
Answer:
$45,000
Explanation:
Computation for the projected benefit obligation
December 31 PBO($278,000)
December 31 Plan assets 233,000
Funded status($45,000)
Therefore the projected benefit obligation was underfunded at the end of 2021 by: $45,000
On July 1 Olive Co. paid $7,500 cash for management services to be performed over a two-year period. Olive follows a policy of recording all prepaid expenses to asset accounts at the time of cash payment. On July 1 Olive should record:
Answer:
The journal entry to record this should be:;
July 1, Year 202x, cash received as deferred revenue
Dr Cash 7,500
Cr Deferred revenue 7,500
Explanation:
Accrual accounting states that both revenues and expenses must be recorded during the periods that they actually occur, and not necessarily when any cash transfer is associated to them.
In this case, the adjusting entry for accrued revenue on December 31 should be:
December 31, year 202x, accrued revenue
Dr Deferred revenue 1,875
Cr Service revenue 1,875
Which of the following is not required to prove innocent representation?
A. The fact asserted was material.
B. The fact asserted constituted a mistake of law.
C. The complaining party's reliance was reasonable.
D. The complaining party entered the contract because of his reliance on the fact asserted.
Answer:
I think it is C
hope I'm right
Classify each of the following based on the macroeconomic definitions of saving and investment.
a. Saving Investment Kate purchases stock in Pherk, a pharmaceutical company.
b. Hubert purchases a new condominium in Houston.
c. Clancy purchases a certificate of deposit at his bank.
d. Eileen borrows money to build a new lab for her engineering firm.
Answer:
a. Savings
b. Investment
c. Savings
d. Investment
Explanation:
Remember,
In macroeconomics, we often see Investments as purchases made with the aim of producing more goods or more wealth in the future. The examples are;
- Kate purchases stock in Pherk, a pharmaceutical company.
-Hubert purchases a new condominium in Houston.
While, Savings refers to the extra money a households have left after paying all their other expenses. Examples here are:
- Clancy purchases a certificate of deposit at his bank.
- Eileen borrows money to build a new lab for her engineering firm.
Direct Materials and Direct Labor Variances At the beginning of June, Bezco Toy Company budgeted 24,000 toy action figures to be manufactured in June at standard direct materials and direct labor costs as follows: Direct materials $36,000 Direct labor 8,640 Total $44,640 The standard materials price is $0.6 per pound. The standard direct labor rate is $9 per hour. At the end of June, the actual direct materials and direct labor costs were as follows: Actual direct materials $33,400 Actual direct labor 8,000 Total $41,400 There were no direct materials price or direct labor rate variances for June. In addition, assume no changes in the direct materials inventory balances in June. Bezco Toy Company actually produced 21,600 units during June. Determine the direct materials quantity and direct labor time variances. Round your per unit computations to two decimal places, if required. Enter a favorable variance as a negative number using a minus sign and an unfavorable variance as a positive number. Direct materials quantity variance $ 2.5 Favorable Direct labor time variance
Answer:
$1,000 unfavorable and $224 unfavorable
Explanation:
The computation of the direct material quantity variance and the direct labor time variance is shown below:
For direct material quantity variance:
= (Standard direct materials ÷ bugeted toy × actually produced) - actual direct materials
= ($36,000 ÷ $24,000 × 21,600 units) - $33,400
= $32,400 - $33,400
= $1,000 unfavorable
For direct labor time variance
= (Standard direct labor ÷ bugeted toy × actually produced) - actual direct labor
= ($8,640 ÷ $24,000 × 21,600 units) - $8,000
= $7,776 - $8,000
= $224 unfavorable
A firm contemplating foreign expansion must make three basic decisions: which markets to enter, when to enter those markets, and on what scale. Once a firm decides to enter a foreign market, the question arises as to the best mode of entry. Firms can use six different modes to enter foreign markets: exporting, turnkey projects, licensing, franchising, establishing joint ventures with a host-country firm, or setting up a new wholly owned subsidiary in the host country. Each entry mode has advantages and disadvantages.
Read each advantage and disadvantage listed below and then match it to corresponding mode.
a. Development cost and operational Strategy
b. Costs, risks, and profits
c. Manufacturing and transportation costs
d. Host country and controls
e. FDI and foreign country
f. Risks and capital investment
1. Exporting
2. Turnkey Contracts
3. Licensing
4. Franchising
5. Joint Ventures
6. Who Ply-own
7. Subsidiaries
Answer:
1. Exporting - c. Manufacturing and transportation costs
2. Turnkey Contracts e. FDI and foreign country
3. Licensing f. Risk and Capital investment
4. Franchising d. Host country and controls
5. Joint Venture - a. Development cost and Operational Strategy
6. Who Ply-own - Risks and profits
7. Subsidiaries - b. Costs, risks and profits
Explanation:
Exporting is beneficial for a country as it brings money to the country but it has many disadvantages. There is high manufacturing and transportation cost. There can be trade barriers in some countries which will restrict the trade benefit. Owing a subsidiary is beneficial when it is profitable but when subsidiary incurs loss the parent has to bear it. It involves high risk investment.
The advantage and disadvantage listed below and their matches in their corresponding mode.
Exporting- Manufacturing and transportation costs Turnkey Contracts- FDI and foreign country Licensing - Risk and Capital investment Franchising- Host country and controls Joint Venture - Development cost and Operational Strategy Who Ply-own (wholly owned subsidiary)- Risks and profits Subsidiaries - Costs, risks and profitsFirms can often use different modes to enter foreign markets. They can use exporting, turnkey projects, licensing, franchising, establishing joint ventures with a host-country firm etc.
Turnkey project : the contractor is in good terms and agrees to handle every detail of the project for a foreign client.
Licensing agreement : licensor often gives the rights to intangible property to another entity for time period under a fee. Franchising is involve longer-term commitments than licensing.
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Sales 22160 units Cash, beginning balance $34000 Selling and administrative (of which depreciation, $5,000) $53000 Required minimum cash balance $66480 If necessary, the company will borrow cash from a bank on the first day of March. Assume that the borrowing can be made in any (exact) amount, but bears interest at 3% per month. The March interest will be paid during subsequent months. Q: What is the closest amount of cash that must be borrowed on March 1 to cover all cash disbursements and to obtain the desired March 31 cash balance
Answer:
Loan taken: 58,320
Explanation:
We add up the beginning cash with the receipts and subtract the expenses.
Then, we compare agaisnt the mnimum required balance
Beginning Cash 34,000
Cash Receipts
Sales 22,160
Total cash form operations: 56,160
Cash disbursements
S&A expense (w/o depreciations) 48,000
Ending Cash from operations 8,160
Minimum Balance: 66,480
Loan taken: 58,320
Garcia Company issues 10%, 15-year bonds with a par value of $230,000 and semiannual interest payments. On the issue date, the annual market rate for these bonds is 8%, which implies a selling price of 117 1/4. The effective interest method is used to allocate interest expense.
1. Using the implied selling price of 117 1/4, what are the issuer's cash proceeds from issuance of these bonds.
2. What total amount of bond interest expense will be recognized over the life of these bonds?
3. What amount of bond interest expense is recorded on the first interest payment date?
Answer:
A.$269,675
B.$305,325
C.$10,787
Explanation:
Requirement A Cash proceeds
Cash proceeds can find out by multiplying par value with the selling price
Cash proceeds = Par Value x Selling price
Cash proceeds = $230,000 x 117.25%
Cash proceeds = $269,675
Requirement B Interest Expense
Bond interest expense =Total repayment -Amount borrowed(REQ.A)
Bond interest expense = $575,000(w) - $269,675
Bond interest expense = $305,325
Workings
Semi-annual interest expense = $230,000 x 10% x 6/12
Semi-annual interest expense = $11,500
Total payment would be 30 for 15 years
Total payment = $11,500 x 30
Total payment = $345,000
Total repayment = Par value + $345,000
Total repayment = $230,000 + $345,000
Total repayment = $575,000
Requirement C Bond interest expense on the first interest payment date
Bond interest Expense = $269,675(REQ.A) x 8% x 6/12
Bond interest Expense = $10,787
assuming it is stored safely how long after It was prepared can refrigerated food be sold or served 1-7 days b-10 days c-14 days d-20 days
Answer:
1-7 days
Explanation:
But, ideally 4 days should be the maximum for prepared food to be refrigerated before it is sold or served.
Leaving food refrigerated for a long time makes it to lose its nutrients. Some foods like potatoes, meat, eggs, chicken, etc. can become harmful or poisonous, especially when you reheat them before eating. That is why it is right to adhere to proper routines for refrigerating food and also preparing and serving the food. Some healthy food are better eaten immediately after their preparation.
For each of the following scenarios, determine if there is an increase or a decrease in supply for the good in italics.
a. The price of silver increases.
b. Growers of tomatoes experience an unusually good growing season.
c. New medical evidence reports that consumption of organic products reduces the incidence of cancer.
d. The wages of low-skill workers, a resource used to help produce clothing, increase.
Answer:
a. The price of silver increases. - Supply Increase
As the price of silver increases, it will make silver more profitable therefore producers will increase production to take advantage of the higher prices to make more profit in total.
b. Growers of tomatoes experience an unusually good growing season. - Supply Increase
If growers of tomatoes experience a good season, it means that there will be more tomatoes to harvest. This will increase the supply of tomatoes.
c. New medical evidence reports that consumption of organic products reduces the incidence of cancer. - Supply Increase.
Supply of organic products will increase as a result of an anticipated and an actual increase in the demand for organic products as more people will buy them to avoid getting cancer.
d. The wages of low-skill workers, a resource used to help produce clothing, increase. - Supply Decrease
When inputs into the production process increase, producers will tend to cut down production to enable them save cost and maintain profitability. If the wages of low-skill workers increase, it will mean that an input is now more expensive so production of clothing will reduce thereby reducing its supply.
Capital budgeting is the process of planning and controlling investments in assets that are expected to produce cash flows for one year or less. This statement is: False True
Answer:
false
Explanation:
Capital budgeting is the process taken to evaluate and determine the profitability of an investment. capital budgeting can be done for projects that have cash flows of more than one year
capital budgeting methods include :
Net present value
internal rate of return
accounting rate of return
payback period
Gaines Corporation invested $126,000 to acquire 26 comma 000 shares of Owens Technologies, Inc. on March 1, 2018. On July 2, 2019, Owens pays a cash dividend of $ 3.25 per share. The investment is classified as equity securities with no significant influence. Which of the following is the correct journal entry to record the transaction on July 2, 2019?
a. Cash 78,000
Equity Investments 78,000
b. Cash 78,000
Retained Equipment 78,000
c. Equity Investments 78,000
Cash 78,000
d. Cash 78,000
Dividend Revune 78,000
Answer:
Cash Dr, $84,500
Dividend revenue $84,500
Explanation:
The Journal entry is shown below:-
Cash Dr, $84,500 (26,000 × $3.25)
To Dividend revenue $84,500
(Being dividend is recorded)
To record the dividend, we debited the cash as it increased the assets and we credited the dividend revenue as it also increased the revenue
Therefore the above entry is the right and the same is not given in the option.
Identify each of the following items as either a capital expenditure (C), an immediate expense (E), or neither (N):
1. Paid property taxes of $75,000 for the first year the new building is occupied.
2. Paid interest on construction note for new plant building, $550,000
3. Repaired plumbing in main plant, paying $270,000 cash.
4. Purchased equipment for new manufacturing plant, $6,000,000; financed with long-term nc
5. Paid dividends of $40,000.
6. Purchased a computer and peripheral equipment for $29,000 cash.
7. Paved a parking lot on leased property for $300,000.
8. Paid $90,000 in cash for installation of equipment in (4).
9. Paid $148,000 to tear down old building on new plant site.
10. Paid $31 ,000 maintenance on equipment in (4) during its first year of use.
Answer:
Options 2, 4, 6, 7, 8, and 9 are capital expenditure.
Options 1, 3, and 10 are the immediate expenses.
Option 5 is Neither.
Explanation:
Capital expenditure is those expenditures that are incurred to maintain the fixed assets. Thus Options 2, 4, 6, 7, 8, and 9 are capital expenditure. While the expenses that are compulsory and immediate in nature are called the immediate expenses. This means if the equipment requires repairing then it will fall in the category of immediate expense because without repairing it won't work. Therefore, a property tax of $75000, repair of the main plant, and maintenance for equipment are immediate expenses.
During the current month, Grey Company transferred 60,000 units of finished production out of the Mixing Department at a cost of $6 each. They were transferred to finished goods. The journal entry to record the transfer would be which of the following?
a. Finished Goods 360,000
Work in Process 360,000
b. Finished Goods 360,000
Cost of Goods Sold 360,000
c. Work in Process 600,000
Finished Goods 600,000
d. Work in Process 600,000
Cost of Goods Sold 600,000
Answer:
a. Finished Goods 360,000
Work in Process 360,000
Explanation:
During transfer, de-recognize the cost of finished and transferred production from the Work In Process Account of the Mixing Department (Credit) and accumulate the cost in the Finished Goods Account (Debit).
When the units are finally sold, Cost of Goods Sold is recognized (Debit) and the Finished Goods Account is De-recognized (Credit).
A company’s perpetual preferred stock pays an annual dividend of $2.10 per share. The preferred stock’s market value is $36.04 per share and the company’s tax rate is 30%. If the flotation costs for preferred stock are 6%, what is the company’s annual cost of new preferred stock financing? Question 4 options: 1) 5.87% 2) 7.25% 3) 6.54% 4) 6.20% 5) 5.41%
Answer:
6.20%
Explanation:
The company’s annual cost of new preferred stock financing is the annual dividend payable on the preferred stock divided by the net price of the stock
annual dividend is $2.10
net price=market price*(1-flotation cost %)
net price=$36.04 *(1-6%)
net price=$ 33.88
company’s annual cost of new preferred stock financing=$2.10/$33.88
company’s annual cost of new preferred stock financing==6.20%
The country of Morson has decided to privatize the state-owned cable television company. How can the country help this newly privatized industry succeed
Answer:
Government Support
Explanation:
Privatization is better for a country. It minimizes the monopoly and encourages healthy competition. Increased competition in the business world is good. There can be variety of services available to the consumers. Government should support privatization by introducing schemes of interest free loan for investors. There will be large number of firms that might want to enter business world but the money is not available to them for startup.
The American Red Cross and the American Medical Association are nonprofit businesses. This is because they: A. plan to make a profit by selling services to other countries. B. exist to benefit a cause but not to make a profit. C. share profits with top management but not with workers. D. sell services directly to customers to make a higher profit.
Answer:B exist to benefit a cause but not to make a profit.
Explanation:
They are to provide services which are useful to the members of the society at large. They exist to promote the interest of members of the public which are social in nature. With a view to ensure the smooth running of the organisation some individuals are elected to run the organisation in the position of chairman, secretary, and treasurer. They do prepare receipt and payment account which is similar to cash account while some do prepare income and expenditure account which is similar to profit and loss account.
9. The risk-free rate and the expected market rate of return are 5.6% and 12.5%, respectively. According to the capital asset pricing model (CAPM), the expected rate of return on a security with a beta of 1.25 is equal to
Answer:
21.2%
Explanation:
CAPM = risk free rate +( beta x expected market return)
5.6% + (1.25 x 12.5%) = 21.2%
Q3) At an output level of 45,000 units, you calculate that the degree of operating leverage is 2.79. If output rises to 48,000 units, what will the percentage change in operating cash flow be
Answer: 18.6%
Explanation:
Degree of operating leverage = % change in Operating cash flow / % change in output
% change in Output
= [tex]\frac{48,000 - 45,000}{45,000}[/tex]
= 6.7%
Degree of operating leverage = % change in Operating cash flow / % change in output
2.79 = % change in Operating cash flow/ 6.7%
% change in Operating cash flow = 2.79 * 6.7%
% change in Operating cash flow = 18.6%
The Western Capital Growth mutual fund has: Total assets$812,000,000Total liabilities$12,000,000Total number of shares 40,000,000 What is the fund's net asset value (NAV) per share?
Answer:
The fund's net asset value (NAV) per share is $20.
Explanation:
Net Asset Value (NAV) = (Assets - Liabilities) ÷ Number of Shares
= ($812,000,000 - $12,000,000) ÷ 40,000,000
= $20
Conclusion :
The fund's net asset value (NAV) per share is $20.
A buyer and a seller enter into a real estate sales contract. Under the contract's terms, the buyer will pay the seller $500 a month for 10 years. The seller will continue to hold legal title, while the buyer will live in the home and pay all real estate taxes, insurance premiums, and regular upkeep costs. What kind of contract do the buyer and seller have
Answer: Land Sales Contract
Explanation:
Land Sales contract are a way to buy a property for people who would otherwise be unable to buy one because they were unable to get a mortgage or are running low in funds.
It works by the buyer paying the seller a certain amount of money for a period of time according to an agreement. During this period of payment, the seller continues to hold the legal rights to the property and then passes it to the buyer when they are finished paying. In this scenario therefore, the seller effectively plays the role of a mortgage bank.
Exercise 10-6 Direct Materials and Direct Labor Variances [LO10-1, LO10-2] Huron Company produces a commercial cleaning compound known as Zoom. The direct materials and direct labor standards for one unit of Zoom are given below: Standard Quantity or Hours Standard Price or Rate Standard Cost Direct materials 7.40 pounds $ 2.60 per pound $ 19.24 Direct labor 0.45 hours $ 8.00 per hour $ 3.60 During the most recent month, the following activity was recorded: 12,100.00 pounds of material were purchased at a cost of $2.50 per pound. All of the material purchased was used to produce 1,500 units of Zoom. 575 hours of direct labor time were recorded at a total labor cost of $5,750. Required: 1. Compute the materials price and quantity variances for the month. 2. Compute the labor rate and efficiency variances for the month.
Answer:
Instructions are below.
Explanation:
Giving the following information:
Direct material:
Standard= 7.40 pounds $ 2.60 per pound
Actual= 12,100 pounds of material were purchased for $2.50 per pound.
Direct labor:
Standard= 0.45 hours $ 8.00 per hour
Actual= 575 hours of direct labor time were recorded at a total labor cost of $5,750
Units produced= 1,500
To calculate the direct material price and quantity variance, we need to use the following formulas:
Direct material price variance= (standard price - actual price)*actual quantity
Direct material price variance= (2.6 - 2.5)*12,100
Direct material price variance= $1,210 favorable
Direct material quantity variance= (standard quantity - actual quantity)*standard price
standard quantity= 1,500*7.4= 11,100
Direct material quantity variance= (11,100 - 12,100)*2.6
Direct material quantity variance= $2,600 unfavorable
To calculate the direct labor efficiency and rate variance, we need to use the following formulas:
Direct labor time (efficiency) variance= (Standard Quantity - Actual Quantity)*standard rate
Standard quantity= 1,500*0.45= 675
Direct labor time (efficiency) variance= (675 - 575)*8
Direct labor time (efficiency) variance= $800 favorable
Direct labor rate variance= (Standard Rate - Actual Rate)*Actual Quantity
Actual rate= 5,750/575= $10
Direct labor rate variance= (8 - 10)*575
Direct labor rate variance= $1,150 unfavorable