Question

****PLEASE ONLY ANSWER E AND F**** Rain Gear, Inc., produces rain jackets. The master budget shows the following standards information and indicates the company expected to produce and sell 28,000 units for the year. Variable manufacturing overhead is allocated based on direct labor hours.

Direct materials	4 yards per unit at $3 per yard
Direct labor	2 hours per unit at $10 per hour
Variable mfg OH	2 direct labor hours per unit at $4 per hour

Rain Gear actually produced and sold 30,000 units for the year. During the year, the company purchased and used 130,000 yards of material for $429,000. 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.

1. Provide a flexible budget of production costs for the year

Direct materials (30000*4*3)=360000

Direct labor (30000*2*10)= 600000

Variable manufacturing overhead (30000*2*4)= 240000

Total variable production costs= 1200000

2. Calculate the materials price variance and materials quantity variance. Enter your calculations into the table below to present your findings:

	Actual	Flexible budget	Budget Variance	Price Variance	Quantity Variance
DM	429000	360000	69000 U (429000-360000)	39000 U	30000 U

3. Calculate the labor rate variance and labor efficiency variance. Enter your calculations into the table below to present your findings:

	Actual	Flexible budget	Budget Variance	Rate Variance	Efficiency Variance
DL	637000	600000	37000 U (637000-60000)	13000 F	50000 U

4. Calculate the variable overhead spending variance and variable overhead efficiency variance. Enter your calculations into the table below to present your findings:

	Actual	Flexible budget	Budget Variance	Spend Variance	Efficiency Variance
VOH	231000	240000	9000 F (231000-24000)	29000 F	20000 U

5. Company policy is to investigate all variances greater than 10 percent of the flexible budget amount for each of the three variable production costs: direct materials, direct labor, and variable overhead. Identify which of the six variances calculated in requirements bthrough eshould be investigated.

6. Provide two possible explanations for each variance identified in requirement e.

Answer 1

Ans: Rain Gear, Inc.

Variance more than 10% is to be Investigated

e) Variances calculated in requirements to be investigated.

a) Material Variance

Budgeted Material Cost = $360,000

1) Price Variance- $ 39,000 U

Variance % - $39,000/$360,000

   - 10.83%

So this Variance is to be Investigated as it is more than 10 %

2) Quantity Variance- $30,000 U

Variance % - $30,000/$360,000

   - 8.33%

So this Variance is not to be Investigated as it is Less than 10%

b) Labor Variances

Direct labor (30000*2*10)= $600,000

1) Rate Variance - 13000 F

Variance % - $13,000/$600,000

   - 2.17%

So this Variance is not to be Investigated as it is Less than 10%

2) Efficiency Variance -$50,000 U

Variance % - $50,000/$600,000

   - 8.33%

So this Variance is not to be Investigated as it is Less than 10%

c) Variable manufacturing overhead Variance

Variable manufacturing overhead (30000*2*4)=$240,000

1) Spend Variance-$29,000 F

Variance % - $29,000/$240,000

   - 12.08%

So this Variance is to be Investigated as it is more than 10 %

2) Efficiency Variance- $20,000 U

Variance % - $20,000/$240,000

   - 8.33%

So this Variance is not to be Investigated as it is Less than 10%

f) Possible explanations for each variance identified in requirement e)

1) Material Price Variance - Two Possible explanations for variance

i) Increase in Market price of the product this may be due to the budgeted material price set is very old

ii) Increase in inflation rate in the market or material is short in supply

2) Variable manufacturing overhead Spend Variance
i) This may be due to labor is short in supply

ii) Increase in market rate per hour for Labor.