Question
Rain Gear, Inc., produces rain jackets. The master budget shows the following standards information: Direct materials 4 yards per unit at $3 per yard Direct
Rain Gear, Inc., produces rain jackets. The master budget shows the following standards information:
Direct materials 4 yards per unit at $3 per yard
Direct labor 2 hours per unit at $10 per hour
Variable overhead 2 direct labor hours per unit at $4 per hour
Rain Gear actually produced and sold 30,000 units. During the year, the company purchased 130,000 yards of material for $429,000 and used 118,000 yards in production. A total of 65,000 labor hours were worked during the year at a cost of $637,000. Variable overhead costs totaled $231,000 for the year. Rain Gear applies fixed manufacturing overhead costs to products based on direct labor hours. It expected to produce and sell 28,000 units for the year. Information for the year appears as follows.
Budgeted fixed overhead costs $280,000
Budget direct labor hours /56,000
Standard cost per direct labor hours $5
Standard direct labor hours per unit 2
Actual production 30,000 units
Actual fixed overhead costs $295,000
a. Calculate the materials price and quantity variances. Label each variance as favorable or unfavorable. b. Calculate the labor rate and efficiency variances. Label each variance as favorable or unfavorable. c. Calculate the variable overhead spending and efficiency variances. Label each as favorable or unfavorable. d. Provide two possible explanations for each variance greater than $20,000. e. Calculate the fixed overhead spending and production volume variances. Label each variance as favorable or unfavorable.
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