Sasha Clothiers is a small company that manufactures oversize suits. The company uses a standard cost accounting system. In May 2012, 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.

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 $35,000.
Instructions
(a) Calculate all of the materials and labour variances.
(b) Calculate the total overhead budget and volume variances.
(c) Which of the materials and labour variances should be investigated if management considers a variance of more than 4% from standard to be significant?

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Cost Element Direct materials Direct labour 8 m at $4.30 per metre 1.2 hours at $13.50 per hour 1.2 hours at $6 per hour Actual $371,050 for 90,500 m ($4.10 per metre) $201,630 for 14,300 hours ($14.10 per hour) $49,000 fixed overhead $37,000 variable Overhead (fixed $3.50; variable $2.50) overhead