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Chisholm Company produces several products, including a karate robe. The company uses a standard cost system...
Chisholm Company produces several products, including a karate robe. The company uses a standard cost system to assist in cost control. According to the standards that have been set for the robes, the factory has a denominator level of activity of 780 direct labour hours which should result in the production of 1,950 robes. The standard costs associated with this level of production are as follows: Total $ per unit of product Direct materials $35,490 $18.20 Direct labour 7,020 3.60 Variable manufacturing overhead* 2,340 1.20 Fixed manufacturing overhead* 4,680 2.40 $25.40 *Based on direct labour hours During May, the factory worked only 760 direct labour hours and produced 2,000 robes. The following actual costs were recorded during the month: Total $ per unit of product Direct materials (6,000 metres) $36,000 $18.00 Direct labour 7,600 3.80 Variable manufacturing overhead* 3,800 1.90 Fixed manufacturing overhead* 4,600 2.30 $26.00 At standard, each robe should require 2.80 metres of material. All of the materials purchased during the month were used in production. Required: Compute the following variances for May: 1. The materials price and quantity variances 2. The labour rate and efficiency variances 3. The variable manufacturing overhead spending and efficiency variances 4. The fixed overhead budget and volume variances
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| Chisholm Company | |||
| Workings for Direct Material variance | Amount | Remarks | Note |
| Standard material cost per unit | 18.20 | A | |
| Standard material required per unit | 2.80 | B | |
| Standard rate per meter of direct material | 6.50 | C=A/B | |
| Standard material cost for 2000 robes | |||
| Standard material cost per unit | 18.20 | See A | |
| Number of robes | 2,000.00 | D | |
| Standard material cost for 2000 robes | 36,400.00 | E=A*D | |
| Standard cost of Actual Quantity used | |||
| Actual Quantity used | 6,000.00 | F | |
| Standard rate per meter of direct material | 6.50 | See C | |
| Standard cost of Actual Quantity used | 39,000.00 | G=F*C | |
| Actual material cost | 36,000.00 | H | |
| Usage Variance | 2,600.00 | Unfavorable | I=G-E |
| Price Variance | (3,000.00) | Favorable | J=H-G |
| Workings for Labor variance | |||
| Standard production units | 1,950.00 | K | |
| Standard labor hours required | 780.00 | L | |
| Standard labor hour required for one robe | 2.50 | M=K/L | |
| Direct labor cost of 780 hours | 7,020.00 | N | |
| Standard labor rate per hour | 9.00 | O=N/780 | |
| Standard labor cost for 2000 robes | |||
| Standard labor cost per unit | 3.60 | P | |
| Number of robes | 2,000.00 | See D | |
| Standard labor cost for 2000 robes | 7,200.00 | Q=P*D | |
| Standard cost of Actual hours | |||
| Actual hours | 760.00 | R | |
| Standard labor rate per hour | 9.00 | See O | |
| Standard cost of Actual labor used | 6,840.00 | S= R*O | |
| Actual labor cost | 7,600.00 | T | |
| Efficiency Variance | (360.00) | Favorable | U=S-Q |
| Rate Variance | 760.00 | Unfavorable | V=T-S |
| Variable Overhead Variance | |||
| Variable overhead for May | 2,340.00 | W | |
| Standard labor hours | 780.00 | See L | |
| Standard Variable overhead per labor hour | 3.00 | X=W/L | |
| Standard variable overhead for 2000 robes | |||
| Standard variable overhead per unit | 1.20 | Y | |
| Number of robes | 2,000.00 | Z | |
| Standard variable overhead for 2000 robes | 2,400.00 | AA=Y*Z | |
| Variable overhead on the basis of actual labor hours used | |||
| Actual hours | 760.00 | See R | |
| Standard Variable overhead per labor hour | 3.00 | See X | |
| Variable overhead on the basis of actual labor hours used | 2,280.00 | AB=R*X | |
| Actual variable overhead cost | 3,800.00 | AC | |
| Efficiency Variance | (120.00) | Favorable | AD=AB-AA |
| Rate Variance | 1,520.00 | Unfavorable | AE=AC-AB |
| Fixed Overhead Variance | |||
| Static Budget | 4,680.00 | AF | |
| Actual cost incurred | 4,600.00 | AG | |
| Budget variance | 80.00 | Favorable | AH=AF-AG |
| Number of robes |
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