DIPLOMA LEVEL ACCOUNTING

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Assignment

Direct material and direct labour variances; job costing; journal entries: manufacturer

Business Wear Fashions manufactures one type of women's jacket, produced 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:

Job no.	No. jackets	Total material used (metres)	Total hours worked
AB	2000	8 200	5 960
CD	3400	13 000	10 260
MN	2400	10 100	5 780

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.

· Page 483

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:

Direct material	4 metres @ $10.00	$ 40.00
Direct labour	3 hours @ $29.00	87.00
Manufacturing overhead	3 hours @ $18.00	54.00
Standard cost per jacket		$181.00

Required:

Construct a 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.

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.

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.

Discuss possible causes for each of the variances that you calculated under requirement 1(b). Consider each variance separately. Also, consider possible interactions between variances.

Assessment Mapping Checklist Learner Name/ID: ___________________________________
Performance & Knowledge Evidence	C/NYC	Comments
Performance Evidence
· gather and record operating and cost data in accordance with organisational policy and procedures
· analyse data and assign costs to products, services and organisational units to comply with organisational procedures
· obtain data and prepare a range of cost reports and budgets to meet management information requirements
· analyse variances between budgeted and actual data, and review integrity of costing systems.
Knowledge Evidence
· identify and describe cost behaviour characteristics for the different cost elements of a product or service
· describe the principles of double-entry bookkeeping and accrual based accounting
· identify and discuss the key features of organisational policy and procedures as they apply to costing systems
· outline the key management information requirements
· identify and explain the key principles and practices of budget preparation
· discuss the relationship between variance analysis and costing system integrity
· explain the key processes and procedures for recording and securely storing data.
· identify and explain the key principles of double-entry bookkeeping and accrual accounting
· identify and explain business legal requirements relating to delegated authorities, reporting periods and taxation payment timings.
Comments:
Signed by Learner: Date:	Signed by Assessor: Date: