Hopkins Clothiers is a small company that manufactures tall-men\'s suits. The co
ID: 2474291 • Letter: H
Question
Hopkins Clothiers is a small company that manufactures tall-men's suits. The company has used a standard cost accounting system. In May 2014, 10,800 suits were produced. The following standard and actual cost data applied to the month of May when normal capacity was 13,000 direct labor hours. All materials purchased were used. Overhead is applied on the basis of direct labor hours. At normal capacity, budgeted fixed overhead costs were $49,400, and budgeted variable overhead was $39,000. (a) Compute the total, price, and quantity variances for (1) materials and (2) labor. (b) Compute the total overhead Total overhead varianceExplanation / Answer
1)
Controllable variance = Actual Factory Overhead - Budgeted Allowance Based on Standard Hours Allowed
Actual Factory overhead = (46500+37500) = $84000
Standard hours allowed for actual production = 10400 x 1.48 = 15392 hours
Variable overhead:
Standard rate for variable overhead = $2.50 / 1.48 hours = $1.69 / hour
Fixed overhead:
Standard rate of fixed overhead = $3.10/1.48 hours = $2.09 / hour
Budgeted overhead allowance based on standard labours allowed
= Allowance for variable overhead + Allowance for Fixed overhead
= 15392 hours x $1.69/hour + 15000 hours x $2.09 / hour [note: fixed overhead allowance is based on normal capacity]
=$57362
Controllable overhead variance = $84000 - $57362 = $26638 Unfavourable
2) Factory overhead volume variance consists of fixed expenses only and can be computed as follows:
Overhead volume variance
= Absorbed fixed overhead – Budgeted fixed Overhead
= Actual hours x Standard fixed overhead absorption rate – Budgeted hour x Standard fixed overhead absorption rate
= 16222 hours x $2.09/hour – 15000 hours x $2.09/hour = $2554 Favourable
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