Question
Patterson Awning manufactures awnings and uses a standard cost system. The company allocates overhead based on the number of direct labor hours. The following are
Patterson 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:
| Standards: | |
| Direct materials 20.0 yards per awning at $12.00 per yard | |
| Direct labor 4.0 hours per awning at $17.00 per hour | |
| Variable MOH standard rate $4.00 per direct labor hour | |
| Predetermined fixed MOH standard rate $6.00 per direct labor hour | |
| Total budgeted fixed MOH cost $48,900 | |
Actual Results
| Purchased 45,150 yards at a total cost of $514,710 | |
| Used 41,000 yards in producing 2,100 awnings | |
| Actual direct labor cost of $143,550 for a total of 8,250 hours | |
| Actual variable MOH $37,950 | |
| Actual fixed MOH $53,900 | |
| 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? |
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Internal Auditing Assurance & Advisory Services
Authors: Urton L. Anderson, Michael J. Head, Sridhar Ramamoorti, Cris Riddle, Mark Salamasick, Paul J. Sobel
4th Edition
0894139878, 978-0894139871
