Aaha Inc. produces premium protective automotive covers. The direct materials and direct labour standards for one car cover are as follows:

Budgeted fixed overhead cost is $17,700, and the normal production volume is 2,185 car covers. Overhead is applied on the basis of direct labour-hours.

In September, the following activity was recorded:

? 12,000 metres of cloth were purchased at a cost of $8.50 per metre.

? All of the purchased material was used to produce 2,000 car covers.

? 525 direct labour-hours were recorded at a total labour cost of $7,875.

Actual variable overhead cost was $3,800, and fixed overhead cost was $17,500.

Required:

1. Compute all direct materials variances for September.

2. Compute all direct labour cost variances for September.?

3. Calculate the total under- or overapplied overhead. Show all the variances calculated and indicate if each variance is favourable or unfavourable.

4. Suppose the standard price per metre for cloth increases by $1. ?The quantity variance is unaffected, but the price variance will become more favourable than before, all else equal.? True or false?

5. When the productivity in the use of direct materials improves, where will the impact be first measured? Select from the three choices below:

a) In the actual cost of direct materials used.

b) In the standard cost of direct materials used.

c) In the cost of the direct materials reported on the flexible budget.

Transcribed Image Text:

Standard Quantity Standard Price or Rate $9 per metre $15 per hour $7 per hour Standard Cost or Hours Direct materials 6.0 metres of cloth $54.00 Direct labour 0.25 hours $ 3.75 Variable overhead 0.25 hours $ 1.75