MadHatter manufactures baseball caps. The Accounting Faculty of PSU order 150 ca
ID: 2448919 • Letter: M
Question
MadHatter manufactures baseball caps. The Accounting Faculty of PSU order 150 caps for the Accounting 211 students with ALOE imprinted on them. MadHatter has the following set of standards for the manufacture of baseball caps.
DM: ½ yard of fabric per cap
$4.00 per yard of fabric
DL: 1 labor hour per cap
$11.00 per labor hour
After the caps were shipped, MadHatter analyzed the actual data from production and discovered the following results.
DM: ¾ yard of fabric per cap
$2.85 per yard of fabric
DL: 1.4 labor hours per cap
$9..50 per labor hour
1. Determine the DM and DL budgets.
2. Calculate the Quantity and Price Variances for each budget and indicate whether each is favorable or unfavorable.
3. Provide explanations for the variances.
Explanation / Answer
a) Budgeted direct material = no. of production units x DM required per unit x cost per unit of DM
= 150 x 0.50 x 4
=300
Budgeted direct material = no. of production units x DL required per unit x cost per unit of DL
= 150 x 1 x 11
=1650
b) Actual results
Actual amount DM = no. of production units x DM required per unit x cost per unit of DM
= 150 x ¾ x2.85
= 320.625
Budgeted direct labor = no. of production units x DL required per unit x cost per unit of DL
= 150 x 1.40 x 9.50
=1,995
Variance = budgeted data – actual result
DM variance = 300 -320.625 = 20.625 unfavorable
DL variance = 1650 – 1995 = 345 unfavorable
c) Both the variances are unfavorable. The firm has used more units of low quality raw material and more labor hours of inefficient labors.
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