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Peterson 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: (Click the icon to view the standards.) Actual cost and operating data from the most recent month are as follows: (Click the icon to view the actual results.) All manufacturing overhead is allocated on the basis of direct labor hours. Read the requirements 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 ) = 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. x 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 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 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 v variance is likely to be related to the variance. It is likely that Peterson Awning This may have resulted in Standard Price and Volume Actual Results Standards: Direct materials 22.0 yards per awning at $15.00 per yard Direct labor 4.0 hours per awning at $16.00 per hour Variable MOH standard rate $7.00 per direct labor hour Predetermined fixed MOH standard rate $10.00 per direct labor hour Total budgeted fixed MOH cost $90,200 Purchased 53,820 yards at a total cost of $791,154 Used 49,800 yards in producing 2,300 awnings Actual direct labor cost of $147,841 for a total of 9,070 hours Actual variable MOH $67, 118 Actual fixed MOH $95,200 Print Done Print Done
