P12-53B accounting system. In May 2016, it produced 11,200 suits. The following
ID: 2534577 • Letter: P
Question
P12-53B accounting system. In May 2016, it produced 11,200 suits. The following standard and actual cost data applied to the month of May when normal capacity was 14,000 direct labour hours. All materials purchased were used Sasha Clothiers is a small company that manufactures oversize suits. The company uses a standard cost (SO 2, 3) Calculate variances and identify significant variances. Cost Element Direct materials Direct labour Overhead Standard (per unit) 8 m at $4.40 per metre 1.2 hours at $13.40 per hour 1.2 hours at $6.10 per hour$49,000 fixed overhead Actual $375,575 for 90,500 m ($4.15 per metre) $200,220 for 14,200 hours ($14.10 per hour) (fixed $3.50; variable $2.60) $37,000 variable overhead Overhead is applied based on direct labour hours. At normal capacity, the budgeted fixed overhead costs are $49,000, and the budgeted variable overhead is $36,400Explanation / Answer
a) Material Price Variance = (standard price - actual price ) actual quantity
=(4.4 -4.15)*90500
= $22625 Fav.
Material quantity variance= (standard qty - actual qty) stndard price
=(8*11200 - 90500)*4.4
=3960 Unfav,.
Labour rate variance = (standard rate - actual rate) actual hours
= (13.4 - 14.10) *14200
= 9940 Unfav.
Labour efficiency variance = (standard hours - actual hours)* standard rate'
=(1.2*11200 - 14200) *13.4
= 10184 Unfav.
b) fixed overhead buget variance = budgeted fixed overhead - actual fixed overhead
= 49000 - 49000 = 0
fixed overhead volume variance = applied fixed overhead - budgeted fixed overhead
= (fixed overhead application rate *actual unit - 49000)
= (budgeted fixed OH/ budgeted hours * actual unit - 49000)
= (49000/14000 *11200 -49000)
= 9800 unfav.
c) labour rate variance should be cosidered by management because:
13.4 - 14.1 = 0.7
0.7/13.4 = 5.22% which is more than 4%
labour efficiency variance should also be considered because,:
13440 -14200= 760
760/13440 = 5.65%
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