Assessment 2
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
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:
1 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: 2 (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. 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(b).
Consider each variance separately. Also, consider possible interactions between variances. Assessment Mapping Checklist
Learner Name/ID: ___________________________________
Performance & Knowledge Evidence
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 doubleentry 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: