INDIANA CORP.

INDIANA Corp. produces a product, cleverly named "Product X" for which the following

standard costs have been established for the production of ONE unit:

Direct materials

Direct labor

At the start of the year, the company did some planning and, based on market conditions and

other information available, they forecasted sales of 600 units for the upcoming year. The

company also has a Just-in-Time (3) inventory system under which materials are only

ordered and units are only produced in response to customer orders. No inventories are kept

and, therefore, the number of units produced always equals the number of units sold.

7

As the year unfolded, demand for the Product X was not as strong as originally anticipated and

actual production and sales amounted to 500 units. The following actual costs were incurred

in connection with the production of the 500 units during the year:

Direct matenals

Direct labor

6 lbs@

3.5 hours@

$1.25 per lb.

$12 per hour

1. DIRECT MATERIALS

REQUIRED:

For both direct materials AND direct labor, provide a meaningful analysis showing the

following:

2,900 lbs @ average cost of

1,500 hours@average wage rate of

2. DIRECT LABOR:

a. The amount used as shown on the master planning budget

b. The flexible budget amount

c. The actual cost incured

d. The static budget variance (or total budget variance)

e. The flexible budget variance (or standard costvariance)

f. The price variance

g. The usage (or quantity) variance

h. 2 possible explanations for the price and usage variance.

$1.30 per pound

$11.50 per hour

a. The amount used as shown on the master planning budget

b. The flexible budget amount

c. The actual cost incured

d. The static budget variance (or total budget variance)

e. The flexible budget variance (or standard costvariance)

f. The rate variance

g. The efficiency vai arce

h. 2 possible explanations for the price and usage variance