Question

Marigold, Ltd. manufactures shirts, which it sells to customers for embroidering with various slogans and emblems. The standard cost card for the shirts is as follows.

		Standard Price		Standard Quantity			Standard Cost
Direct materials		$3 per yard		2.00	yards		$6.00
Direct labor		$14 per DLH		0.75	DLH		10.50
Variable overhead		$3.20 per DLH		0.75	DLH		2.40
Fixed overhead		$3 per DLH		0.75	DLH		2.25
							$21.15

Sandy Robison, operations manager, was reviewing the results for November when he became upset by the unfavorable variances he was seeing. In an attempt to understand what had happened, Sandy asked CFO Suzy Summers for more information. She provided the following overhead budgets, along with the actual results for November.

The company purchased 80,700 yards of fabric and used 92,300 yards of fabric during the month. Fabric purchases during the month were made at $2.80 per yard. The direct labor payroll ran $443,450, with an actual hourly rate of $12.25 per direct labor hour. The annual budgets were based on the production of 587,000 shirts, using 437,000 direct labor hours. Though the budget for November was based on 44,200 shirts, the company actually produced 40,700 shirts during the month.

		Variable Overhead Budget
		Annual Budget		Per Shirt		November—Actual
Indirect material		$447,000		$1.20		$49,100
Indirect labor		305,000		0.75		31,600
Equipment repair		205,000		0.30		20,800
Equipment power		49,000		0.15		6,600
Total		$1,006,000		$2.40		$108,100

		Fixed Overhead Budget
		Annual Budget		November—Actual
Supervisory salaries		$263,000		$21,600
Insurance		351,000		27,300
Property taxes		79,000		6,100
Depreciation		321,000		26,300
Utilities		204,000		20,700
Quality inspection		282,000		25,400
Total		$1,500,000		$127,400

(a) Calculate the direct materials price and quantity variances for November. (If variance is zero, select "Not Applicable" and enter 0 for the amounts.)

Direct material price variance	$enter the direct material price variance in dollars	select an option                                                          UnfavorableFavorableNot Applicable
Direct material quantity variance	$enter the direct material quantity variance in dollars	select an option                                                          FavorableNot ApplicableUnfavorable

(b) Calculate the direct labor rate and efficiency variances for November. (Round answers to 0 decimal places, e.g. 125. If variance is zero, select "Not Applicable" and enter 0 for the amounts.)

Direct labor rate variance	$enter the direct labor rate variance in dollars	select an option                                                          Not ApplicableFavorableUnfavorable
Direct labor efficiency variance	$enter the direct labor efficiency variance in dollars	select an option                                                          UnfavorableNot ApplicableFavorable

(c) Calculate the variable overhead spending and efficiency variances for November. (Round answers to 0 decimal places, e.g. 125. If variance is zero, select "Not Applicable" and enter 0 for the amounts.)

Variable overhead spending variance	$enter the variable overhead spending variance in dollars	select an option                                                          Not ApplicableUnfavorableFavorable
Variable overhead efficiency variance	$enter the variable overhead efficiency variance in dollars	select an option                                                          FavorableUnfavorableNot Applicable

(d) Calculate the fixed overhead spending variance for November. (Round answer to 0 decimal places, e.g. 125. If variance is zero, select "Not Applicable" and enter 0 for the amounts.)

Fixed overhead spending variance

$enter the fixed overhead spending variance in dollars

select an option                                                          FavorableNot ApplicableUnfavorable

Answer 1

Part a –

Direct Materials Price Variance
Actual Price	$2.80	per yard
Standard Price	$3.00	per yard
Variance or Difference in Price	$0.20	per pound
x Actual Quantity PURCHASED	80,700	pounds
Direct Material Price Variance	$16,140	Favorable
Direct Material Quantity/Efficiency/Usage Variance
Standard Quantity Allowed for actual production:
Actual Production/Activity	40700	Shirts
x Allowed Standard Quantity Per Unit	2.00	Yards
Total Standard Quantity Allowed for actual production (SQAP)	81,400	Yards
Actual Quantity USED	92,300	Yards
Variance or Difference in Quantity	10,900	Yards
x Standard Price (SP)	$3.00	Per Pound
Material Quantity/Efficiency Variance	$32,700	Unfavorable

Part b –

Direct Labor Rate/Price Variance
Actual Hourly Rate	$12.25	Per Hour
Standard Hourly Rate	$14.00	Per Hour
Variance or Difference in Rate	$1.75	Per Hour
x Actual Labor Hours worked ($443,450 / Rate $12.25)	36200	Hours
Labor Rate Variance	$63,350	Favorable
Direct Labor Quantity / Efficiency Variance
Standard Hours Allowed for actual production:
Equivalent units of production	40700	Shirts
x Allowed Standard Hours Per Unit	0.75	hours
Total Standard Hours Allowed for actual production (SHAP)	30,525	hours
Actual Labor Hours Worked	36,200	hours
Variance or Difference in Hours	5,675	hours
x Standard Hourly Rate (SHR)	$14.00	per hour
Labor Efficiency Variance	$79,450	Unfavorable

Part c –

Variable Overhead Spending Variance = Actual Rate * Actual Hours – Standard Rate * Actual Hours

= $108,100 - $3.20 * Actual Hours from part 2 i.e. 36,200

= $108,100 – 115,840

= $7,740 Favorable

Variable Overhead Efficiency Variance

Variable Overhead Efficiency/Quantity Variance
Standard Hours Allowed for actual production:
Actual Production	40,700	Shirts
x Allowed Standard Labor Hours Per Unit	0.75	Hours
Total Standard Hours Allowed for actual production (SHAP)	30525	Hours
Actual Hours Worked (AH)	36200	Hours
Variance or Difference in Hours	5675	hours
x Standard Hourly Variable Overhead Rate	$3.20	per hour
Variable Overhead Efficiency Variance	$18,160	Unfavorable

Part d – Fixed Overhead Spending Variance

Fixed Overhead Expenditure/Spending/Budget Variance
Budgeted Fixed Overheads ($1,500,000 / 587,000 Shirts * November Budget 44,200 Shirts)	$112,947
Actual Fixed Overheads (AFOH)	$127,400
Fixed Overhead Expenditure Variance	$14,453	Unfavorable

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