Hopkins Clothiers is a small company that manufactures tall-men\'s suits. The co
ID: 2476952 • Letter: H
Question
Hopkins Clothiers is a small company that manufactures tall-men's suits. The company has used a standard cost accounting system. In May 2014, 11,200 suits were produced. The following standard and actual cost data applied to the month of May when normal capacity was 14,000 direct labor hours. All materials purchased were used. Overhead is applied on the basis of direct labor hours. At normal capacity, budgeted fixed overhead costs were dollar 49,000, and budgeted variable overhead was dollar 36,400. Instructions Compute the total, price, and quantity variances for (1) materials and (2) labor: Compute the total overhead variance. Which of the materials and labor variances should be investigated if management considers a variance of more than 4% from standard to be significant?Explanation / Answer
Direct Material Quantity Variance = (Standard Qty for Actual Output – Actual Qty)*Standard Price
= (11200*8 - 90500) * 4.4
= 3960 (A)
Direct Material Price Variance = (Standard Price – Actual Price)*Actual Qty
= (4.4 - 4.15) * 90500
= 22625 (F)
Direct Material Cost Variance = Standard Qty for actual output * SP - Actual Qty* AP
= 11200 *8*4.4 – 375575
= 18665 (F)
Direct Labor Efficiecy Variance = (Standard hrs for Actual Output – Actual hrs)*Standard Price
= (11200*1.2 - 14200) * 13.4
= 10184 (A)
Direct Labor Rate Variance = (Standard Price – Actual Price)*Actual Hours
= (13.4-14.1) * 14200
= 9940 (A)
Direct Labor Cost Variance = Standard hours for actual output * SP - Actual hours* AP
= 11200 *1.2*13.4 – 200220
= 20124 (A)
Variable O/h Cost Variance = Standard hours for actual output * SP - Actual hours* AP
= 11200 *1.2*2.6 – 37000
= 2056 (A)
Fixed Overhead Total Variance = Absorbed Fixed Overheads - Actual Fixed Overheads
= 11200*3.5 – 49000
= 9800 (A)
Overhead total variance is sum of variable & fixed variance.
If management considers a variance of more than 4 % from standard than material variance is significant.
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