P11-55B Comprehensive standards and variances problem (Learning Objectives 1,2,3
ID: 2574505 • Letter: P
Question
P11-55B Comprehensive standards and variances problem (Learning Objectives 1,2,3,5, & 6) Nautical Awning manufactures awnings and uses a standard cost system. Nautical allocates overhead based on the number of direct labor hours. The following are the company's cost and standards data: Direct material 18.0 yards per awning at $10.00 per yard Direct labor 2.0 hours per awning at $13.00 per hour Variable MOH standard rate $5.00 per direct labor hour Predetermined fixed MOH standard rate $10.00 per direct labor hour Total budgeted fixed MOH cost $34,000 Actual cost and operating data from the most recent month follows: Purchased 35,460 yards at a total cost of $333,324 Used 31,300 yards in producing 1,800 awnings Actual direct labor cost of $45,457 for a total of 3,470 hours Actual variable MOH cost S19,085 Actual fixed MOH cost $39,500 All manufacturing overhead is allocated on the basis of direct labor hours. Requirements 1. Caleulate the standard cost of one awning. 2. Calculate the tollowing variances: a. The direct material variances. b. The direct labor variances. c. The variable manufacturing ovethead variances. d. The fixed manufacturing overhead variances. 3. Explain what each of the variances you calculated means and give at least one possible explanation for each of those variances. Are any of the variances likely to be interrelated?Explanation / Answer
Nautical Awning $ Standard cost of one awning Direct material 180 Yards/awning 18 Cost/yard 10 Direct labour 26 Hours/awning 2 Cost/hour 13 Variable Overhead 10 Overhead/labour hour 5 Labour hours 2 Fixed Overhead 20 Direct labour hours 2 Rate 10 Standard cost of awning 236 Total budgeted Fixed Overhead 34000 Actuals Direct material purchases 333324 Yards 35480 Cost/yard 9 Production (awnings) 1800 Actual direct material used (yds) 31300 Actual direct material costs 294054 Actual labour hours 3470 45457 Actual labour rate 13 Actual Variable MOH cost 19065 Actual Variable MOH rate/hour 5 Actual Fixed Overhead Cost 39500 Actual Fixed Overhead Cost/hour 11 Actual cost of production 398076 Variances: Direct material variance Standard material cost 324000 Actual material cost 294054 Material Cost Variance -29946 This means either that material cost more than budgeted or more material was used than budgeted or both. Labour cost variance Standard labour cost 46800 Actual labour cost 45457 Material Cost Variance 1343 The favourable variance means that either the actual labour hours were less than budgeted or the actual wages were less than budgeted or both Variable MOH cost variance: Standard MOH cost 18000 Actual Variable MOH cost 19065 Variable MOH cost variance: -1065 This means that actual variable overheads were greater than budgeted Fixed Overhead Variance: Standard Fixed Overhead Cost 34000 Actual Fixed Overhead cost 39500 Fixed Overhead Variance -5500 This means that actual fixed overheads were greater than budgeted The Labour cost variance and the Variable overhead cost variance could be related. When production is less efficient and workers spend a longer time using machines, both the Labour cost variance and Variable Overhead cost would be higher than budgeted.
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