Summer Fun Products makes a large beach umbrella. It consists of a canvas top th

Question

Summer Fun Products makes a large beach umbrella. It consists of a canvas top that is sewn together from precut pieces plus a wood pole and arch structure. Below is information relative to the canvas

process for the month of June 2014.

Standard material cost per yard             $5.00

Standard labor rate per hour                   $25.00

Standard variable overhead rate per DLH             $2.00

Standard Material to make one umbrella              3 Yards

Standard Labor Hours to make one umbrella 2 Hours

During the month of June, the firm made 1,000 umbrellas. They paid $57,600 in direct labor for 1800 hours of labor. They actually purchased 3,500 yards of material for $15,995. Actual variable overhead was $4,500. They actually used 3200 yards of material.

Required:

1. Compute the material quantity and price variances.

2. Compute the labor rate and efficiency variances.

3. Compute the actual variable overhead rate.

4. Compute the variable overhead spending and efficiency variances.

5. To what general ledger account does a company close variances?

6. Discuss any relationships you might see between the various components of the direct labor and

direct material variances.

Explanation / Answer

Solution:

1 Direct material price variance = ( Standard price per yard - Actual price per yard ) * Standard Quantity Standard price per yard 5 Actual price per yard - $ 15,995 / 3,500 yards 4.57 Standard Quantity - 1,000 umbrellas * 3 yard 3,000 Direct material price variance                      1,290 2 Direct material quantity variance = ( Standard quantity for actual output - Actual quantity ) * Standard price per yard Standard Quantity - 1,000 umbrellas * 3 yard 3,000 actual quantity 3,200 Actual price per yard - $ 15,995 / 3,500 yards 4.57 Direct material quantity variance -914 3 Direct labor rate variance = ( Standard rate per hour - Actual rate per hour ) * Standard hours Standard rate per hour 25 Actual rate per hour - $ 57,600 / 1,800 hours 32.00 Standard hours   2 * 1,000 2000 Direct labor rate variance -14000 4 Direct labor efficiency variance = ( Standard hours for actual output - Actual hours ) * Standard rate per hour Standard hours   2 * 1,000 2,000 actual hours 1,800 Actual rate per hour - $ 57,600 / 1,800 hours 32.00 Direct labor efficiency variance =                      6,400

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