Herzog Clothiers manufactures women's business suits. Thecompany uses a standard cost accounting system. In March 2012,15,700 suits were made. The following standard and actual cost dataapplied to the month of March when normal capacity was 20,000direct labor hours. All materials purchased were used inproduction.
Cost Element Standard (per unit) Actual Direct materials 5 yards at $6.80 per yard $547,200 for 76,000 yards ($7.20 per yard) Direct labor 1.0 hours at $11.50 per hour $166,880 for 14,900 hours ($11.20 per hour) Overhead 1.0 hours at $9.30 per hour (fixed $6.30; variable $3.00) $120,000 fixed overhead $49,000 variable overhead
Overhead is applied on the basis of direct labor hours. Atnormal capacity, budgeted fixed overhead costs were $126,000, andbudgeted variable overhead costs were $60,000.
Instructions
(a) Compute the total, price, and quantity variances for (1)materials and (2) labor.
(a) MPV $30,400 U
(b) Compute the total overhead variance.
(c) Which of the materials and labor variances should beinvestigated if management considers a variance of more than 5%from standard to be significant?
Herzog Clothiers manufactures women's business suits. Thecompany uses a standard cost accounting system. In March 2012,15,700 suits were made. The following standard and actual cost dataapplied to the month of March when normal capacity was 20,000direct labor hours. All materials purchased were used inproduction.
|
Overhead is applied on the basis of direct labor hours. Atnormal capacity, budgeted fixed overhead costs were $126,000, andbudgeted variable overhead costs were $60,000.
Instructions
| (a) | Compute the total, price, and quantity variances for (1)materials and (2) labor. (a) MPV $30,400 U |
| (b) | Compute the total overhead variance. |
| (c) | Which of the materials and labor variances should beinvestigated if management considers a variance of more than 5%from standard to be significant? |
Related questions
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.
Castle Company produces throw blankets that arepopular holiday gifts. Standard variable costs relatingto a single blanket are given below
Standard Quantity orHours | Standard Price or Rate | Standard Cost | |
Direct materials | 2.62 yards | $5 per yard | $? |
Direct labor | 1.35 DLH | $6.80 per DLH | $? |
Variable manufacturingoverhead | 1.35 DLH | $2 per direct labor-hour | $? |
Total standard cost | $? |
Overhead is applied to production on the basisof direct labor hours. During March,924 blankets were manufactured andsold.
Selected information related to themonth
The standard cost card for the single product manufactured by Cutter, Inc., is given below:
| Inputs | (1) Standard Quantity or Hours | (2) Standard Price or Rate | Standard Cost (1) Ã (2) | ||||
| Direct materials | 4.2 yards | $ | 5.00 | per yard | $ | 21.00 | |
| Direct labor | 0.8 hours | $ | 15.00 | per hour | 12.00 | ||
| Variable overhead | 0.8 hours | $ | 1.50 | per hour | 1.20 | ||
| Fixed overhead | 0.8 hours | $ | 5.00 | per hour | 4.00 | ||
| Total standard cost per unit | $ | 38.20 | |||||
Manufacturing overhead is applied to production on the basis of standard direct labor-hours. During the year, the company worked 8,760 hours and manufactured 10,700 units of product. Selected data relating to the companyâs fixed manufacturing overhead cost for the year are shown below:
| Actual Fixed Overhead | Budgeted Fixed Overhead | Fixed Overhead Applied to Work in Process | |||||
| $42,000 | ? | ? hours à $? per hour = $? | |||||
| Budget variance, $? | Volume variance, $1,800 F | ||||||
Required:
1. What were the standard hours allowed for the yearâs production?
2. What was the amount of budgeted fixed overhead cost for the year?
3. What was the fixed overhead budget variance for the year? (Indicate the effect of each variance by selecting "F" for favorable, "U" for unfavorable, and "None" for no effect (i.e., zero variance). Input all amounts as positive values.)
4. What denominator activity level did the company use in setting the predetermined overhead rate for the year?
