Aaha Inc. produces premium protective automotive covers. The direct materials an
ID: 2508304 • Letter: A
Question
Aaha Inc. produces premium protective automotive covers. The direct materials and direct labour standards for one car cover are as follows:
Compute all direct materials variances for September. (Indicate the effect of each variance by selecting "F" for favourable, "U" for unfavourable, and "None" for no effect (i.e., zero variance).)
Compute all direct labour cost variances for September. (Indicate the effect of each variance by selecting "F" for favourable, "U" for unfavourable, and "None" for no effect (i.e., zero variance).)
Calculate the total under- or overapplied overhead. Show all the variances calculated and indicate if each variance is favourable or unfavourable. (Indicate the effect of each variance by selecting "F" for favourable, "U" for unfavourable, and "None" for no effect (i.e., zero variance). Do not round intermediate calculations and round "Fixed overhead volume variance and total variance" to 2 decimal places.)
Aaha Inc. produces premium protective automotive covers. The direct materials and direct labour standards for one car cover are as follows:
Explanation / Answer
1. To compute the direct materials price variance, take the difference between the standard price (SP) and the actual price (AP), and then multiply that result by the actual quantity (AQ):
Direct materials price variance = -12150 (unfavourable)
To get the direct materials quantity variance, multiply the standard price by the difference between the standard quantity (SQ) and the actual quantity:
Direct materials quantity variance = 16,650(Favourable)
Total direct materials variance=Direct materials price variance+Direct materials quantity variance
Total direct materials variance=4500(Favourable)
2. Direct labor rate variance is the product of actual direct labor hours and the difference between the standard direct labor rate and actual direct labor rate.
DL Rate Variance = 0 No effect
To get the direct labor quantity variance (also known as the direct labor efficiency variance), multiply the standard rate (SR) by the difference between total standard hours (SH) and the actual hours worked (AH):
Direct labor efficiency variance = 8495 Favourable
The direct labor variance equals the difference between the total budgeted cost of labor (SR x SH) and the actual cost of labor, based on actual hours worked (AR x AH):
Total direct labor variance = 8495 Favourable
3. Variable Overhead Variance
Variable Overhead Spending Variance s the product of actual units of the allocation base of variable overhead and the difference between standard variable overhead rate and actual variable overhead rate.
Total Variable Overhead Variance=2478 Favourable
Direct materials price variance = (SP – AP) x AQ Direct materials price variance = (10-10.5)*24300 Direct materials price variance = (10-10.5)*24300Direct materials price variance = -12150 (unfavourable)
To get the direct materials quantity variance, multiply the standard price by the difference between the standard quantity (SQ) and the actual quantity:
Direct materials quantity variance = SP x (SQ – AQ) Direct materials quantity variance = 10*((9*2885)-24300))Direct materials quantity variance = 16,650(Favourable)
Total direct materials variance=Direct materials price variance+Direct materials quantity variance
Total direct materials variance=-12150+16650Total direct materials variance=4500(Favourable)
2. Direct labor rate variance is the product of actual direct labor hours and the difference between the standard direct labor rate and actual direct labor rate.
DL Rate Variance = ( SR ? AR ) × AH DL Rate Variance =(20-(11700/585))*585DL Rate Variance = 0 No effect
To get the direct labor quantity variance (also known as the direct labor efficiency variance), multiply the standard rate (SR) by the difference between total standard hours (SH) and the actual hours worked (AH):
Direct labor quantity variance = SR x (SH – AH) Direct labor efficiency variance =20*( (7/20*2885)-585)Direct labor efficiency variance = 8495 Favourable
The direct labor variance equals the difference between the total budgeted cost of labor (SR x SH) and the actual cost of labor, based on actual hours worked (AR x AH):
Total direct labor variance = (SR x SH) – (AR x AH) Total direct labor variance = ((20*7/20*2885)-(11700)Total direct labor variance = 8495 Favourable
3. Variable Overhead Variance
Variable Overhead Spending Variance s the product of actual units of the allocation base of variable overhead and the difference between standard variable overhead rate and actual variable overhead rate.
VOH Spending Variance = ( SR ? AR ) × AU VOH Spending Variance =(8-(5600/585))*585 VOH Spending Variance =-920 Unfavourable The variable overhead efficiency variance=Standard overhead rate x (Standard hours-Actual) The variable overhead efficiency variance=8*((7/20*2885)-585) The variable overhead efficiency variance=3398 Favourable Total Variable Overhead Variance=VOH Spending Variance+variable overhead efficiency variance Total Variable Overhead Variance=-920+3398Total Variable Overhead Variance=2478 Favourable
fixed overhead volume variance= Absorbed Fixed Overheads-Budgeted Fixed Overheads fixed overhead volume variance=(2700*(17400/2885))-17400 fixed overhead volume variance=-1115.77 Unfavourable Controllable Variance Actual Overheads Fixed Factory Overheads 16,850 Variable Factory Overheads 5,600 22,450 Less Budgeted Overheads Fixed Budgeted Factory Overheads=(17400/(7/20*2885))*585 10,080.71 Variable Factory Overheads Budgeted=8*7/20*2885 8,078 18,158.71 Controllable Variance 4,291.29 UnfavourableRelated Questions
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