ABC Dress Shop produces high quality formal dresses. In April 2018 they produced
ID: 2527752 • Letter: A
Question
ABC Dress Shop produces high quality formal dresses. In April 2018 they produced 16,000 dresses. For the month of April the following standard and actual cost data are available. The normal monthly capacity of the company is 40,000 direct labor hours. All material purchased in April was used in April production.
Standard per Dress
Actual
Direct materials
5.0 yards @ $8.50 per yard
$643,250 for 83,000 yards
Direct labor
2.0 hours @ $12.00 per hour
$425,000 for 34,000 hours
Overhead
hours @ $5.15 per hour
(fixed $3.25; variable $1.90)
$125,000 fixed overhead
$49,000 variable overhead
Overhead is applied on the basis of direct labor hours. At normal capacity, budgeted fixed overhead costs are $130,000 per month and budgeted variable overhead costs are $76,000 per month.
Required
a. Calculate the direct materials price variance for April. Label the variance as favorable or unfavorable.
b. Calculate the direct materials quantity variance for April. Label the variance as favorable or unfavorable.
c. Calculate the direct labor rate variance for April. Label the variance as favorable or unfavorable.
d. Calculate the direct labor efficiency variance for April. Label the variance as favorable or unfavorable.
e. Calculate the variable overhead spending variance for April. Label the variance as favorable or unfavorable.
f. Calculate the variable overhead efficiency variance for April. Label the variance as favorable or unfavorable.
g. Calculate the fixed overhead spending variance for April. Label the variance as favorable or unfavorable.
h. Calculate the fixed overhead production volume variance for April. Label the variance as favorable or unfavorable.
i. Which of the variances should be investigated if management considers a variance of more than 5% from standard to be significant?
j. Provide a discussion of the tradeoffs that might exist between the direct material and direct labor variances.
Standard per Dress
Actual
Direct materials
5.0 yards @ $8.50 per yard
$643,250 for 83,000 yards
Direct labor
2.0 hours @ $12.00 per hour
$425,000 for 34,000 hours
Overhead
hours @ $5.15 per hour
(fixed $3.25; variable $1.90)
$125,000 fixed overhead
$49,000 variable overhead
Explanation / Answer
Answers
Actual DATA for
16000
units
Quantity (AQ)
Rate (AR)
Actual Cost
Direct Material
83000 yards
$ 7.75
$ 6,43,250.00
Direct labor
34000 hours
$ 12.50
$ 4,25,000.00
Variable Overhead
34000 hours
$ 1.44
$ 49,000.00
Standard DATA for
16000
units
Quantity (SQ)
Rate (SR)
Standard Cost
Direct Material
80000 yards
$ 8.50
$ 6,80,000.00
Direct labor
32000 hours
$ 12.00
$ 3,84,000.00
Variable Overhead
32000 hours
$ 1.90
$ 60,800.00
Material Price Variance [Answer ‘a’]
(
Standard Rate
-
Actual Rate
)
x
Actual Quantity
(
$ 8.50
-
$ 7.75
)
x
83000
62250
Variance
62250
Favourable-F
Material Quantity Variance [Answer ‘b’]
(
Standard Quantity
-
Actual Quantity
)
x
Standard Rate
(
80000
-
83000
)
x
$ 8.50
-25500
Variance
25500
Unfavourable-U
Material Spending Variance
(
Standard Cost
-
Actual Cost
)
(
$ 6,80,000.00
-
$ 6,43,250.00
)
36750
Variance
36750
Favourable-F
Labor Rate Variance [Answer (c)]
(
Standard Rate
-
Actual Rate
)
x
Actual Labor Hours
(
$ 12.00
-
$ 12.50
)
x
34000
-17000
Variance
17000
Unfavourable-U
Labour Efficiency Variance [Answer (d)]
(
Standard Hours
-
Actual Hours
)
x
Standard Rate
(
32000
-
34000
)
x
$ 12.00
-24000
Variance
24000
Unfavourable-U
Labor Spending Variance
(
Standard Cost
-
Actual Cost
)
(
$ 3,84,000.00
-
$ 4,25,000.00
)
-41000
Variance
41000
Unfavourable-U
Variable Overhead Rate Variance
(
Standard Rate
-
Actual Rate
)
x
Actual Labor Hours
(
$ 1.90
-
$ 1.44
)
x
34000
15600
Variance
15600
Favourable-F
Variable Overhead Efficiency Variance [Answer ‘f’]
(
Standard Hours
-
Actual Hours
)
x
Standard Rate
(
32000
-
34000
)
x
$ 1.90
-3800
Variance
3800
Unfavourable-U
Variable Overhead Spending Variance [Answer ‘e’]
(
Standard Cost
-
Actual Cost
)
(
$ 60,800.00
-
$ 49,000.00
)
11800
Variance
11800
Favourable-F
Actual DATA for
16000
units
Quantity (AQ)
Rate (AR)
Actual Cost
Direct Material
83000 yards
$ 7.75
$ 6,43,250.00
Direct labor
34000 hours
$ 12.50
$ 4,25,000.00
Variable Overhead
34000 hours
$ 1.44
$ 49,000.00
Standard DATA for
16000
units
Quantity (SQ)
Rate (SR)
Standard Cost
Direct Material
80000 yards
$ 8.50
$ 6,80,000.00
Direct labor
32000 hours
$ 12.00
$ 3,84,000.00
Variable Overhead
32000 hours
$ 1.90
$ 60,800.00