Question

Problem 24-03A a-b (Video)

Concord Clothiers is a small company that manufactures tall-men’s suits. The company has used a standard cost accounting system. In May 2020, 10,400 suits were produced. The following standard and actual cost data applied to the month of May when normal capacity was 16,000 direct labor hours. All materials purchased were used.

Cost Element		Standard (per unit)		Actual
Direct materials		10 yards at $4.20 per yard		$419,600 for 104,900 yards ($4.00 per yard)
Direct labor		1.10 hours at $13.00 per hour		$161,336 for 12,040 hours ($13.40 per hour)
Overhead		1.10 hours at $6.20 per hour (fixed $3.70; variable $2.50)		$49,600 fixed overhead $37,500 variable overhead

Overhead is applied on the basis of direct labor hours. At normal capacity, budgeted fixed overhead costs were $59,200, and budgeted variable overhead was $40,000.

(a)

Compute the total, price, and quantity variances for (1) materials and (2) labor. (Round per unit values to 2 decimal places, e.g. 52.75 and final answers to 0 decimal places, e.g. 52.)

(1)		Total materials variance		$		FavorableUnfavorableNeither favorable nor unfavorable
		Materials price variance		$		UnfavorableFavorableNeither favorable nor unfavorable
		Materials quantity variance		$		Neither favorable nor unfavorableUnfavorableFavorable
(2)		Total labor variance		$		Neither favorable nor unfavorableUnfavorableFavorable
		Labor price variance		$		FavorableNeither favorable nor unfavorableUnfavorable
		Labor quantity variance		$		UnfavorableNeither favorable nor unfavorableFavorable

(b)

Compute the total overhead variance.

Total overhead variance

$

UnfavorableFavorableNeither favorable nor unfavorable

Answer 1

Based on the information available in the question, we can calculate the answers as follows:-

a.)

Total Materials Variance = (Actual price * Actual quantity) - (Standard price * Standard quantity)

Total Materials Variance = ($4 * 104,900) - ($4.20 * 104,000)

Total Material Variance = $419,600 - $436,800

Total Material Variance = $17,200 Unfavorable

Since the actual materials is greater than the standard materials, the variance is Unfavorable.

Materials price variance = (Actual price - Standard price) * Actual quantity used

Actual price = $419,600/104,900 yards = $4 per yard

=($4 - $4.20) * 104,900 yards

=$0.20 * 104,900 yards

Materials Price Variance = $20,980 Favorable

Since the actual price paid for materials is lower than the standard price for materials, the variance is Favorable.

Materials Quantity variance = (Actual usage - Standard usage) * Standard cost per unit

Standard usage (in units) = 10,400 suits * 10 yards per suit = 104,000 yards

Materials quantity variance = (104,900 yards - 104,000 yards) * $4.20 per tube

Materials quantity variance = 900 yards * $4.20

Materials quantity variance = $3,780 Unfavorable

Since the actual quantity used is higher than the standard quantity used, the variance is Unfavorable.

2.)

Total Labor Variance = (Actual hours * Actual rate per hour) - (Standard hours * Standard rate per hour)

=($13.40 * 12,040 hours) - ($13 * 11,440 hours)

=$161,336 - $148,720

=$12,616 Unfavorable

Since the actual labor is higher than the standard labor, there is an Unfavorable variance of $12,616

Labor Price Variance = (Actual Rate - Standard Rate) * Actual hours worked

Actual Rate = $161,336/12,040 hours = $13.40 per hour

=($13.40 per hour - $13 per hour) * 12,040 hours

=$0.40 per hour * 12,040 hours

=$4,816 Unfavorable

Since the actual rate per hour is higher than the standard rate per hour, the variance is Unfavorable.

Labor Price Variance = $4,816 Unfavorable

Labor Quantity Variance = (Actual hours - Standard hours) * Standard Rate

Standard hours = 10,400 suits * 1.10 hour per suit = 11,440 hours

Labor quantity variance = (12,040 hours - 11,440 hours) * $13

Labor quantity variance = 600 hours * $13

Labor quantity variance = $7,800 Unfavorable

Since the actual time spent is higher than the standard time, the variance is unfavorable

Requirement B:-

Total Overhead Variance = Actual Overheads - Applied Overheads

=($49,500 + $37,500) - [(16,000 suits * $3.70) + (12,040 hours * $2.50)]

=$87,100 - ($59,200 + $30,100)

=$87,100 - $*89,300

=2,200 Favorable.

Since the actual overheads is lesser than the budgeted overheads, the variance is favorable.

Please let me know if you have any questions via comments and all the best :)