Question

ABC Dress Shop produces high quality formal dresses. In April 2018 they produced 16,000 dresses. For the month of April the following standard and actual cost data are available. The normal monthly capacity of the company is 40,000 direct labor hours. All material purchased in April was used in April production.

	Standard per Dress	Actual
Direct materials	5.0 yards @ $8.50 per yard	$643,250 for 83,000 yards
Direct labor	2.0 hours @ $12.00 per hour	$425,000 for 34,000 hours
Overhead	hours @ $5.15 per hour (fixed $3.25; variable $1.90)	$125,000 fixed overhead $49,000 variable overhead

Overhead is applied on the basis of direct labor hours. At normal capacity, budgeted fixed overhead costs are $130,000 per month and budgeted variable overhead costs are $76,000 per month.

Required

a. Calculate the direct materials price variance for April. Label the variance as favorable or unfavorable.

b. Calculate the direct materials quantity variance for April. Label the variance as favorable or unfavorable.

c. Calculate the direct labor rate variance for April. Label the variance as favorable or unfavorable.

d. Calculate the direct labor efficiency variance for April. Label the variance as favorable or unfavorable.

e. Calculate the variable overhead spending variance for April. Label the variance as favorable or unfavorable.

f. Calculate the variable overhead efficiency variance for April. Label the variance as favorable or unfavorable.

g. Calculate the fixed overhead spending variance for April. Label the variance as favorable or unfavorable.

h. Calculate the fixed overhead production volume variance for April. Label the variance as favorable or unfavorable.

i. Which of the variances should be investigated if management considers a variance of more than 5% from standard to be significant?

j. Provide a discussion of the tradeoffs that might exist between the direct material and direct labor variances.

Answer 1

• All working forms part of the answer
• As per guidelines, I’m obliged to answer first four answers when there are too many questions due to time restrain. HOWEVER, I am providing answers for first six questions, from Question (a) to Question (f)
• Actual Data and Standard data for actual 16000 units

Actual DATA for		16000	units
	Quantity (AQ)	Rate (AR)	Actual Cost
Direct Material	83000 yards	$                7.75	$       6,43,250.00
Direct labor	34000 hours	$              12.50	$       4,25,000.00
Variable Overhead	34000 hours	$                1.44	$          49,000.00
Standard DATA for		16000	units
	Quantity (SQ)	Rate (SR)	Standard Cost
Direct Material	80000 yards	$                8.50	$       6,80,000.00
Direct labor	32000 hours	$              12.00	$       3,84,000.00
Variable Overhead	32000 hours	$                1.90	$           60,800.00

• Answers

Material Price Variance [Answer ‘a’]
(	Standard Rate	-	Actual Rate	)		x	Actual Quantity
(	$                 8.50	-	$                 7.75	)		x	83000
	62250
	Variance		62250				Favourable-F
Material Quantity Variance [Answer ‘b’]
(	Standard Quantity	-	Actual Quantity	)		x	Standard Rate
(	80000	-	83000	)		x	$                           8.50
	-25500
	Variance		25500				Unfavourable-U
Material Spending Variance
(	Standard Cost	-	Actual Cost	)
(	$   6,80,000.00	-	$   6,43,250.00	)
	36750
	Variance		36750				Favourable-F
Labor Rate Variance [Answer (c)]
(	Standard Rate	-	Actual Rate	)		x	Actual Labor Hours
(	$               12.00	-	$               12.50	)		x	34000
	-17000
	Variance		17000				Unfavourable-U
Labour Efficiency Variance [Answer (d)]
(	Standard Hours	-	Actual Hours	)		x	Standard Rate
(	32000	-	34000	)		x	$                        12.00
	-24000
	Variance		24000				Unfavourable-U
Labor Spending Variance
(	Standard Cost	-	Actual Cost	)
(	$   3,84,000.00	-	$   4,25,000.00	)
	-41000
	Variance		41000				Unfavourable-U
Variable Overhead Rate Variance
(	Standard Rate	-	Actual Rate	)		x	Actual Labor Hours
(	$                 1.90	-	$                 1.44	)		x	34000
	15600
	Variance		15600				Favourable-F
Variable Overhead Efficiency Variance [Answer ‘f’]
(	Standard Hours	-	Actual Hours	)		x	Standard Rate
(	32000	-	34000	)		x	$                           1.90
	-3800
	Variance		3800				Unfavourable-U
Variable Overhead Spending Variance [Answer ‘e’]
(	Standard Cost	-	Actual Cost	)
(	$      60,800.00	-	$      49,000.00	)
	11800
	Variance		11800			Favourable-F