Scenario: MadHatter manufactures baseball caps. The Accounting Faculty of PSU or

Question

Scenario:
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

Assignment:

Determine the DM and DL budgets.   
Calculate the Quantity and Price Variances for each budget and indicate whether each is favorable or unfavorable.
Provide explanations for the variances.

Explanation / Answer

Direct material budget = 150 x 0.5 x $ 4 = $ 300

Direct labor budget = 150 x 1 x $ 11 = $ 1650

Direct material price variance = ( Standard price - Actual price ) x Actual quantity purchased = ( $ 4 - $ 2.85) x 112.5

= $ 129.375 F

Direct material quantity variance = ( Standard quantity for actual output - Actual quantity used ) x Standard price per unit = (75 - 112.5) x $ 4 = $ 150 U

Total direct material cost variance = $ 300 - (150 x 0.75 x $ 2.85 )= $ 20.625 U

Direct labor rate variance = ( Standard rate - Actual rate) x Actual hours worked = ( $ 11 - $ 9.50) x 210 = $ 315 F

Direct labor efficiency variance = ( Standard hours for actual output - Actual hours worked) x Standard labor rate per hour = ( 150 - 210) x $ 11 = $ 660 U

Total direct labor variance = $ 1650 - ( 210 x $ 9.50) = $ 345 U

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