11#3

Awning manufactures awnings and uses a standard cost system. The company allocates overhead based on the number of direct labor hours. The following are the company's cost and standards data:

LOADING...

(Click the icon to view the standards.)

.....

Actual cost and operating data from the most recent month are as follows:

LOADING...

(Click the icon to view the actual results.)

All manufacturing overhead is allocated on the basis of direct labor hours.

Read the requirements

LOADING...

.

Requirement 1. Calculate the standard cost of one awning.

Standard cost	Standard cost per unit
Direct materials
Direct labor
Variable MOH
Fixed MOH
Total standard cost

Requirement 2a. Calculate the direct material variances. (Enter the variances as positive numbers. Enter currency amounts to the nearest cent and your answers to the nearest whole dollar. Label the variance as favorable (F) or unfavorable (U). Abbreviations used: DM = Direct materials.)

First determine the formula for the price variance, then compute the price variance for direct materials.

		(		-		)	=	DM price variance
		(		-		)	=

Determine the formula for the quantity variance, then compute the quantity variance for direct materials.

		(		-		)	=	DM quantity variance
		(		-		)	=

Requirement 2b. Calculate the direct labor variances. (Enter the variances as positive numbers. Enter currency amounts to the nearest cent and your answers to the nearest whole dollar. Label the variance as favorable (F) or unfavorable (U). Abbreviations used: DL = Direct labor.)

First determine the formula for the rate variance, then compute the rate variance for direct labor.

		(		-		)	=	DL rate variance
		(		-		)	=

First determine the formula for the efficiency variance, then compute the efficiency variance for direct labor.

		(		-		)	=	DL efficiency variance
		(		-		)	=

Requirement 2c. Calculate the variable manufacturing overhead variances. (Enter the variances as positive numbers. Enter currency amounts to the nearest cent and your answers to the nearest whole dollar. Label the variance as favorable (F) or unfavorable (U).)

First determine the formula for the rate variance, then compute the rate variance for variable manufacturing overhead. (Round interim calculations to the nearest cent.)

								Variable overhead
		(		-		)	=	rate variance
		(		-		)	=

Now compute the variable manufacturing overhead efficiency variance. First determine the formula for the efficiency variance, then compute the efficiency variance for variable manufacturing overhead.

								Variable overhead
		(		-		)	=	efficiency variance
		(		-		)	=

Requirement 2d. Calculate the fixed manufacturing overhead variances. (Enter the variance as a positive number. Label the variance as favorable (F) or unfavorable (U).)

Begin by computing the fixed manufacturing overhead budget variance. First determine the formula for the budget variance, then compute the budget variance for fixed manufacturing overhead.

					Fixed MOH
		-		=	budget variance
		-		=

Now compute the fixed manufacturing overhead volume variance. First determine the formula for the volume variance, then compute the volume variance for fixed manufacturing overhead.

					Fixed MOH
		-		=	volume variance
		-		=

Requirement 3.Explain what each of the variances you calculated means and give at least one possible explanation for each of those variances.

Direct materials:

Variance	Meaning	Possible explanation
DM price
DM quantity

Direct Labor:

Variance	Meaning	Possible explanation
DL rate
DL efficiency

Variable manufacturing overhead:

Variance	Meaning	Possible explanation
VOH rate
VOH efficiency

Fixed manufacturing overhead:

Variance	Meaning	Possible explanation
FOH budget
FOH volume

Are any of the variances likely to be interrelated?

The

favorable DL efficiency

favorable DM quantity

unfavorable DL efficiency

unfavorable DM quantity

variance is likely to be related to the

favorable DL rate

favorable DM price

unfavorable DL rate

unfavorable DM price

variance. It is likely that

Pickul

Awning

hired less qualified employees at a lower rate

hired more qualified employees at a higher rate

purchased higher quality materials at a higher price

purchased lower quality materials at a lower price

. This may have resulted in

Standard price and volume

Dialog content starts

Standards:

Direct materials 18.0 yards per awning at $15.00 per yard

Direct labor 4.0 hours per awning at $15.00 per hour

Variable MOH standard rate $8.00 per direct labor hour

Predetermined fixed MOH standard rate $5.00 per direct labor hour

Total budgeted fixed MOH cost $27,200

Actual results

Dialog content starts

Purchased 28,950 yards at a total cost of $416,880

Used 26,100 yards in producing 1,500 awnings

Actual direct labor cost of $87,210 for a total of 5,700 hours

Actual variable MOH $47,310

Actual fixed MOH $32,200