La Torge Jewelry Co. produces fine jewelry for high‐end retail stores. The company specializes in producing pearl
jewelry, specifically, bracelets, necklaces, and earrings. The primary materials used in each product are pearls and
sterling silver. The sterling silver is purchased and used in wire form (measured in inches) to make bracelets and
necklaces. It is purchased and used in sets to make earrings.
Although all of La Torge’s pieces are sold individually, the company’s most successful product is its complete pearl
jewelry set, which includes a matching bracelet, necklace, and pair of earrings, and is expected to sell for $525 per set.
La Torge expects to produce and sell 600 complete pearl jewelry sets in each month of 2017. Here are the standards the
company has set for one unit of each product within the complete pearl jewelry set:
Bracelet
Standard price or rate Standard Quantity
Direct materials:
Pearls $4.99 per pearl 22 pearls per bracelet
Sterling Silver $0.30 per inch 7 inches per bracelet
Direct labor $11 per DLH 20 minutes per bracelet
Variable overhead $7 per DLH 20 minutes per bracelet
Necklace
Standard price or rate Standard Quantity
Direct materials:
Pearls $4.99 per pearl 57 pearls per necklace
Sterling Silver $0.30 per inch 18 inches per necklace
Direct labor $11 per DLH 40 minutes per necklace
Variable overhead $7 per DLH 40 minutes per necklace
Earrings
Standard price or rate Standard Quantity
Direct materials:
Pearls $4.99 per pearl 2 pearls per pair of earrings
Sterling Silver $2.75 per set 1 set per pair of earrings
Direct labor $11 per DLH 30 minutes per pair of earrings
Variable overhead $7 per DLH 30 minutes per pair of earrings
As the above standards indicate, the variable overhead is applied to each product on the basis of direct labor hours.
2
In September 2017, for the first time all year, the company surpassed the monthly projected output of the complete
pearl jewelry sets. Here are the actual results for that product in September 2017:
Actual Results
Units sold (complete pearl jewelry sets) 650
Revenues $325,000.00
Variable costs:
Direct materials:
Pearls $248,425.00
Sterling silver $7,944.00
Direct labor $12,480.00
Variable overhead $7,680.00
Total variable costs: $276,529.00
Contribution margin $48,471.00
Fixed costs $30,000.00
Net operating income/(loss) $18,471.00
Other relevant information about the production of the complete pearl jewelry sets in September 2017 is as follows:
 All the pearls bought during the month were used in production as follows: 15,200 pearls were used to make
bracelets, 35,900 pearls were used to make necklaces, and 1,200 pearls were used to make earrings.
 All the sterling silver purchased in wire form during the month was used in production as follows: 4,700 inches
were used to make bracelets and 11,000 inches were used to make necklaces. La Torge paid $0.40 per inch for
sterling silver in wire form.
 All the sterling silver sets purchased during the month were used in production. A total of 640 sets at a purchase
price of $2.60 per set were used to make earrings.
 The actual direct labor hours (DLH) worked in September by product are as follows: 225 DLH were used to make
bracelets, 420 DLH were used to make necklaces, and 315 DLH were used to make earrings.
 The budgeted fixed costs were $30,000 for the month of September.
The company president, Carol Kegan, has compared the static budget for this product in the month of September to the
above actual results, and can’t understand why the actual profitability for September is lower than expected given that
the product’s output exceeded expectations. She has scheduled a meeting next week to discuss this with the following
managers:
Manager’s Name Manager’s Title Manager’s Responsibilities
Ashley Yelvic Sales manager Leads the sales team; creates and implements overall
sales strategy, including strategic product pricing and
target market focus for product placement
Amy Mastia Direct materials purchasing
manager
Sources and buys all key direct materials; negotiates
competitive prices; assesses supplier quality
Charles Egan Production manager – Bracelets Oversees production of all bracelets, including usage of
all product inputs required to make the bracelets
Bernard Iskaal Production manager –
Necklaces
Oversees production of all necklaces, including usage of
all product inputs required to make the necklaces
Fran Piscano Production manager – Earrings Oversees production of all earrings, including usage of
all product inputs required to make the earrings
Matt Neelas   Human resources manager Oversees employee recruitment and hiring, including
negotiations for competitive wage packages
3
The company’s controller, Josie Tiselle, will also be at this meeting. Assume you are a staff accountant at La Torge
Jewelry Co. and you work for Josie, who has given you the above information and asked you to do the following five
things:
1. Prepare the company’s September 2017 static budget for the complete pearl jewelry set. Compare it to the
September 2017 actual results provided above for the complete pearl jewelry set. Show all variances in your
comparison.
2. Prepare the company’s September 2017 flexible budget for the complete pearl jewelry set. Compare it to the
September 2017 actual results provided above for the complete pearl jewelry set. Show all variances in your
comparison.
3. Calculate the following variances for each product within the complete pearl jewelry set and on an overall basis
for September 2017:
a. Direct materials efficiency variance for the pearls
b. Direct materials efficiency variance for the sterling silver (wire form)
c. Direct materials efficiency variance for the sterling silver (sets)
d. Direct labor efficiency variance
e. Variable overhead spending variance
f. Variable overhead efficiency variance
4. Calculate the following variances on an overall basis for September 2017:
a. Direct materials price variance for the pearls
b. Direct materials price variance for the sterling silver (wire form)
c. Direct materials price variance for the sterling silver (sets)
d. Direct labor price variance
5. Write a memo to Josie Tiselle explaining what happened in the month of September. Your explanation should be
based on the analysis you did above and include a relevant summary of the key data. Of the managers attending
next week’s meeting, which one’s practices, if any, would you recommend be continued in future months, and
why? Which manager’s practices, if any, would you recommend be changed in future months, and why?