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:

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

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

Standards:

Direct materials 18.0 yards per awning at $15.00 per yard

Direct labor 3.0 hours per awning at $12.00 per hour

Variable MOH standard rate $8.00 per direct labor hour

Predetermined fixed MOH standard rate $12.00 per direct labor hour

Total budgeted fixed MOH cost $69,500

Purchased 39,000 yards at a total cost of $573,300

Used 35,000 yards in producing 2,000 awnings

Actual direct labor cost of $70,906 for a total of 5,860 hours

Actual variable MOH $49,224

Actual fixed MOH $75,000

1.	Calculate the standard cost of one awning.
2.	Calculate the following variances:
	a. The direct material variances.
	b. The direct labor variances.
	c. The variable manufacturing overhead 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?

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.

		x (		-		)	=	DM price variance
		x (		-		)	=

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

		x (		-		)	=	DM quantity variance
		x (		-		)	=

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.

		x (		-		)	=	DL rate variance
		x (		-		)	=

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

		x (		-		)	=	DL efficiency variance
		x (		-		)	=

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 nearestcent.)

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

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
		x (		-		)	=	efficiency variance
		x (		-		)	=

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
DM 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

ParsonParson

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

an increase in materials needed

a reduction in materials needed

decreased labor efficiency

improved labor efficiency

.