Aaha Inc. produces premium protective automotive covers. The direct materials an

Question

Aaha Inc. produces premium protective automotive covers. The direct materials and direct labour standards for one car cover are as follows: Standard Quantity Standard Price Standard or Rate $ 9 per metre $13 per hour $ 7per hour Cost $49.50 3 2 or Hours Direct materials Direct labour Variable overhead 5.5 metres of cloth 0 hours 0 hours Budgeted fixed overhead cost is $18,100, and the normal production volume is 2,380 car covers. Overhead is applied on the basis of direct labour-hours In September, the following activity was recorded 12,100 metres of cloth were purchased at a cost of $8.50 per metre. All of the purchased material was used to produce 2,200 car covers. · 505 direct labour-hours were recorded at a total labour cost of $6,565 Actual variable overhead cost was $4,000, and fixed overhead cost was $17,800 Required 1. 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).) Direct materials price variance Direct materials quantity variance Total direct material cost variance

Explanation / Answer

Stanadard Actual Direct Material 12100 (5.5*2200) 12100 (5.5*2200) Direct Labour 505 labour hours 505 labour hours Variable overhead 3535 (505*7) 4000 Fixed Overheads 18100 17800 1 Direct Material Variances Direct material price varaince 6050 F (9-8.5)*12100 Direct material Quantity varaince 0 None (12100-12100)*9 Total Direct Material cost variance 6050 F (Direct material price varaince+Direct material Quantity varaince) 2 Direct Labour Costs Variances Direct Labour price varaince 0 None (13-13)*505 Direct Labour Efficiency varaince 0 None (505*13)-(505*13) Total Direct labour cost variance 0 None (Direct Labour price varaince+Direct Labour Efficiency varaince) 3 Overhead Variances Variable overhead rate varaiance -465 U (3535-4000) variable overhead efficiency varaiance 0 None (505*13-505*13) Variable overhead total varaince -465 U Fixed overhead budget variance 300 F (18100-17800) Fixed overhead volume variance 300 F (18100-17800) Fixed overhead total variance 600 F 4 TRUE If the price of the material increases by $1 then the qunatity varaince shall be unaffected, but the price varainace will be more favourable since the procurment cost is less

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