ABC Dress Shop produces high quality formal dresses. In July2018 they produced 16,000 dresses. For the month of July thefollowing standard and actual cost data are available. The normalmonthly capacity of the company is 40,000 direct labor hours. Allmaterial purchased in July was used in July production.
Standard per Dress
Actual
Direct materials
5.0 yards @ $8.50 per yard
$643,250 for 83,000 yards
Direct labor
2.0 hours @ $12.00 per hour
$425,000 for 34,000 hours
Overhead
hours @ $5.15 per hour
(fixed $3.25; variable $1.90)
$125,000 fixed overhead
$49,000 variable overhead
Overhead is applied on the basis of direct labor hours. Atnormal capacity, budgeted fixed overhead costs are $130,000 permonth and budgeted variable overhead costs are $76,000 permonth.
Variance Standard Actual Variance % Variance >5% Direct Materials Price 136000 124000 12000 8.82% Yes Investiage Direct Materials Quantity 680000 705500 25500 3.75% No Direct Labor Rate 408000 425000 17000 4.17% No Direct Labor Efficiency 384000 408000 24000 6.25% Yes Investiage Variable OverheadSpending 64600 49000 15600 24.15% Yes Investiage Variable OverheadEfficiency 64600 63080 1520 2.35% No Fixed Overhead Spending 130000 125000 5000 3.85% No Fixed Overhead ProductionVolume 130000 110500 19500 15.00% Yes Investiage
QUESTION: Provide a discussion of thetradeoffs that might exist between the direct material and directlabor variances.
ABC Dress Shop produces high quality formal dresses. In July2018 they produced 16,000 dresses. For the month of July thefollowing standard and actual cost data are available. The normalmonthly capacity of the company is 40,000 direct labor hours. Allmaterial purchased in July was used in July production.
Standard per Dress | Actual | |
Direct materials | 5.0 yards @ $8.50 per yard | $643,250 for 83,000 yards |
Direct labor | 2.0 hours @ $12.00 per hour | $425,000 for 34,000 hours |
Overhead | hours @ $5.15 per hour (fixed $3.25; variable $1.90) | $125,000 fixed overhead $49,000 variable overhead |
Overhead is applied on the basis of direct labor hours. Atnormal capacity, budgeted fixed overhead costs are $130,000 permonth and budgeted variable overhead costs are $76,000 permonth.
Variance | Standard | Actual | Variance | % Variance | >5% | |
Direct Materials Price | 136000 | 124000 | 12000 | 8.82% | Yes | Investiage |
Direct Materials Quantity | 680000 | 705500 | 25500 | 3.75% | No | |
Direct Labor Rate | 408000 | 425000 | 17000 | 4.17% | No | |
Direct Labor Efficiency | 384000 | 408000 | 24000 | 6.25% | Yes | Investiage |
Variable OverheadSpending | 64600 | 49000 | 15600 | 24.15% | Yes | Investiage |
Variable OverheadEfficiency | 64600 | 63080 | 1520 | 2.35% | No | |
Fixed Overhead Spending | 130000 | 125000 | 5000 | 3.85% | No | |
Fixed Overhead ProductionVolume | 130000 | 110500 | 19500 | 15.00% | Yes | Investiage |
QUESTION: Provide a discussion of thetradeoffs that might exist between the direct material and directlabor variances.