Poulsbo Kayak Company makes molded plastic kayaks. Standard costs for an entry$-$level whitewater kayak are as follows:

Direct materials, $60$ lb at $$5\mathrm{.}50/$lb $$330$ Direct labor, $1\mathrm{.}5$ hr at $$16/$hr $24$ Overhead, at $$12$ per kayak $12$ Total $$366$

The overhead rate assumes production of $450$ kayaks per month. The overhead cost function is $$2,808+($$$5\mathrm{.}76*$ number of kayaks$).$

CHAPTER $8$ FLEXIBLE BUDGETS AND VARIANCE ANALYSIS $359$

CHAPTER $8$

$360$ PART $2$ ACCOUNTING FOR PLANNING AND CONTROL

During March, Poulsbo produced $430$ kayaks and had the following actual results:

Direct materials purchased and used Direct labor

Actual overhead

$27,000$ pounds at $$5\mathrm{.}30/$lb $670$ hours at $$15\mathrm{.}90/$hr $$5,335$

$1.$ Compute material, labor, and overhead variances.

$2.$ Interpret the variances.

$3.$ Suppose the cost function for variable overhead was $$3\mathrm{.}84$ per labor hour instead of $$5\mathrm{.}76$ per

kayak. Compute the variable$-$overhead efficiency variance and the total overhead spending vari$-$ ance. Would these variances lead you to a different interpretation of the overhead variances from the interpretation in requirement $2?$ Explain.