Question
New Look Inc manufactures a single product. The company uses a standard costing system and established the following standard for one unit of product.
New Look Inc manufactures a single product. The company uses a standard costing system and established the following standard for one unit of product. Variable manufacturing overhead cost is assigned using labor hours. Standard Standard Cost Quantity per unit Standard Price or Standard Rate per unit Direct Material 8 pounds $ 1.80 per pound $14.40 Direct Labor 0.25 hours $8.00 per hour $2.00 Variable Manufacturing overhead 0.25 hours $5.25 per hour $1.3125 Additional Information: i. The company produced 19000 units during the month. ii. A total of 160000 pounds of material were purchased at $304,000. At the end of the month, 17500 pounds of material remained in inventory. iii. During the month 5000 direct labor hours were worked at a rate of $7.56 per hour. iv. The variable manufacturing overhead costs during the month totaled $30000. Calculate the following: a) Calculate the materials price and quantity variance for the month? (3 marks) b) Calculate the labor rate and labor efficiency variance for the month? (3 marks) c) Calculate the variable manufacturing overhead spending and efficiency variance (3 marks) d) Which variance requires management's attention and why? Identify the probable reasons for the variance. (3 marks)
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