Problem 6-32 Crane, Ltd. manufactures shirts, which it sells to customers for em
ID: 2546676 • Letter: P
Question
Problem 6-32 Crane, Ltd. manufactures shirts, which it sells to customers for embroidering with various slogans and emblems. The standard cost card for the shirts is as follows Direct materials Direct labor Variable overhead Fixed overhead Standard Price Standard Quantity Standard Cost $6.00 6.00 2.00 3.00 $17.00 $4 per yard $12 per DLH $4 per DLIH $6 per DLH 1.50 yards 0.50 DLH 0.50 DLH 0.50 DLH Sandy Robison, operations manager, was reviewing the results for November when he became upset by the unfavorable variances he was seeing. In an attempt to understand what had happened, Sandy asked CFO Suzy Summers for more information. She provided the following overhead budgets, along with the actual results for November The company purchased and used 79,600 yards of fabric during the month. Fabric purchases during the month were made at $3.90 per yard. The direct labor payroll ran $319,725, with an actual hourly rate of $12.25 per direct labor hour. The annual budgets were based on the production of 45,000 shirts, using 245,000 direct labor hours. Though the budget for November was based on 50,000 shirts, the company actually produced 52,000 shirts during the month Variable Overhead Budget Indirect material Indirect labor Equipment repair Equipment power Annual Budget Per Shirt November-Actual $0.90 0.60 0.40 0.10 $2.00 $445,000 295,000 195,000 45,000 $980,000 $48,600 30,900 20,000 6,500 $106,000 Total Fixed Overhead Budget Supervisory salaries Insurance Property taxes Depreciation Annual Budget November-Actual $21,000 27,000 6,000 25,500 $255,000 345,000 75,000 315,000Explanation / Answer
1)Material Price variance :AQ [AR-SR]
= 79600[3.9-4]
= 79600 * -.1
= -7960 F
Material quantity variance : SR [AQ-SQ]
= 4[79600- (52000*1.5)]
=4 [79600- 78000]
= 6400 U
B)Actual hours :319725/12.25=26100 DLH
Labor rate variance :AH[AR-SR]
= 26100[12.25-12]
= 26100*.25
= 6525 U
Labor efficiency variance :SR [AH-SH]
12 [26100- (50000*.5)]
12 [26100-25000]
13200 U
C)Variable overhead spending variance : Actual variable overhead - [AH*SR]
= 106000 - [26100*4]
= 106000 -104400
= 1600 U
Variable overhead efficiency variance : SR [AH-SH]
= 4[26100-25000]
= 4* 1100
= 4400 U
D)Fixed overhead spending variance :Actual overhead -Budgeted overhead
= 123900 - 122500
= 1400 U
**Budgeted monthly fixed overhead : 1470000/12=122500
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