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Problem 1) a Penney's Perfect Aviator (PPA) Inc. is a small business that sells black leather aviator unisex flexible hats in one- size-fits-everyone. These hats
Problem 1) a Penney's Perfect Aviator (PPA) Inc. is a small business that sells black leather aviator unisex flexible hats in one- size-fits-everyone. These hats are made entirely and composed of 100% shearling sheepskin. Shearling is a skin from a shor sheep or lamb that has been tanned and dressed with the wool left on. It has a suede surface on one side and a clipped fur surface on the other. Shearling can be made from real sheepskin, not from synthetic fibers. It is more flexible and much heavier in weight and the fur is much denser than synthetic. PPA Inc. has several workers. The leather aviator hats require shearling and labour. Penney experiments with the type of shearling used. PPA Iric, has bi-modal turnover in labour - some employees have been with the company a very long-time and others are new and inexperienced. PPA Inc. implements a standard costing system for the aviator hats. Penney expects that a typical aviator hat should take 4.8 hours to produce and the standard wage rate is $18 per hour. An average hat uses 5 sq. meters of shearling, Penney shops around for good deals and expects to pay $38 per sq. meter. PPA Inc. has a JIT inventory system, as product is manufactured once an order has been placed. For the month of February, the company produced 880 aviator hats using 4,285 labour hours and 420 sq. meters of shearling. Penney bought shearling for $16,120 (and used the entire quantity), and incurred labour costs of $75,980. Required: 1) Calculate the price and efficiency variances for the shearling and the price and efficiency variances for direct manufacturing labour. 2) Record the journal entries for the variances incurred. 3) Discuss logical explanations for the combination of variances that Penney experienced
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