Question
Jojo Bragais manufactures high quality and fashionable womens footwear abroad. The Jojo Bragais Fashionable Footwear has experiencing tremendous problems in their United States of America
Jojo Bragais manufactures high quality and fashionable womens footwear abroad. The Jojo Bragais Fashionable Footwear has experiencing tremendous problems in their United States of America branch as shown by its May contribution format income statement below:
Upon reviewing the income statement from the United States of America. It was concluded that the major problem lies in the variable cost of goods sold. The accountant from the branch has provided the standard cost per pairs of footwear.
During May, 15,000 pairs of footwear and incurred the following costs:
A. Purchased 60,000 feet of materials at a cost of $4.95 per foot.
B. Used 49,200 feet of materials in production (Finished goods and work in process inventories are insignificant and can be ignored).
C. Worked 11,800 direct labor-hours at a cost of $17.00 per hour.
D. Incurred variable manufacturing overhead cost totaling $18,290 for the month. A total of 5,900 machine-hours was recorded.
E. It is the companys policy to close all variances to cost of goods sold on a monthly basis.
REQUIREMENT:
1. Compute the following variances for May:
A. Materials price and quantity variances.
B. Labor rate and efficiency variances.
C. Variable overhead rate and efficiency variances.
2. Summarize the variances that you computed in No. 1 above by showing the net overall favorable or unfavorable variance of the month. What impact did this figure have on the companys income statement? Show computations.
3. Select three significant variances that your group computed from No. 1 above and explain the possible causes of these variances
Flexible Budget Actual Sales (15,000 pairs of footwear) Variable Expenses: Variable Cost of Goods Sold* Variable Selling Expenses Total Variable Expenses Contribution Margin \begin{tabular}{rr} $675,000 & $675,000 \\ 435,000 & \\ 20,000 & 461,890 \\ 455,000 & 20,000 \\ \hline 220,000 & 481,890 \\ \hline \end{tabular} Fixed Expenses: Manufacturing Overhead Selling and Administration Total Fixed Cost Net Operating Income (Loss) *Includes direct materials, direct labor and variable manufacturing overhead \begin{tabular}{|l|r|r|r|} \hline & \multicolumn{1}{|c|}{StandardQuantityofHours} & StandardPriceorRate & Standard Cost \\ \hline Direct Material & 3.0 feet & $5.00 per foot & $15.00 \\ \hline Direct Labor & 0.8 hours & $16.00 per hour & 12.80 \\ \hline Variable Manufacturing Overhead & 0.4 hours & $3.00 per hour & 1.20 \\ \hline Total Standard Cost Per Unit & & & $29.00 \\ \hline \end{tabular} *Based on machine-hours Flexible Budget Actual Sales (15,000 pairs of footwear) Variable Expenses: Variable Cost of Goods Sold* Variable Selling Expenses Total Variable Expenses Contribution Margin \begin{tabular}{rr} $675,000 & $675,000 \\ 435,000 & \\ 20,000 & 461,890 \\ 455,000 & 20,000 \\ \hline 220,000 & 481,890 \\ \hline \end{tabular} Fixed Expenses: Manufacturing Overhead Selling and Administration Total Fixed Cost Net Operating Income (Loss) *Includes direct materials, direct labor and variable manufacturing overhead \begin{tabular}{|l|r|r|r|} \hline & \multicolumn{1}{|c|}{StandardQuantityofHours} & StandardPriceorRate & Standard Cost \\ \hline Direct Material & 3.0 feet & $5.00 per foot & $15.00 \\ \hline Direct Labor & 0.8 hours & $16.00 per hour & 12.80 \\ \hline Variable Manufacturing Overhead & 0.4 hours & $3.00 per hour & 1.20 \\ \hline Total Standard Cost Per Unit & & & $29.00 \\ \hline \end{tabular} *Based on machine-hoursStep by Step Solution
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