Aaha Inc produces premium protective automotive covers. The direct materials and
ID: 2552632 • Letter: A
Question
Aaha Inc produces premium protective automotive covers. The direct materials and direct labour standards for one car cover are as follows Standard Quantity Standard Price Standard or Hours or Rate Cost Direct materials Direct labour Variable overhead 6 0 metres of cloth $12 per metre $72.00 0 hours 0 hours $14 per hour S 7per hour 2 Budgeted fixed overhead cost is $16,200, and the normal production volume is 2,285 car covers. Overhead is applied on the basis of direct labour-hours In September, the following activity was recorded 12,600 metres of cloth were purchased at a cost of $12.50 per metre . All of the purchased material was used to produce 2,100 car covers 555 direct labour-hours were recorded at a total labour cost of $7,770 Actual variable overhead cost was $5,000, and fixed overhead cost was $15,950 Required: 1. Compute all direct materials variances for September. (Indicate the effect of each variance by selecting "F" for favourable, "U" for unfavourable, and "None" for no effect (i.e., zero variance).) Direct materials price variance Direct materials quantity variance Total direct material cost variance 2. Compute all direct labour cost variances for September (Indicate the effect of each variance by selecting "F" for favourable, "U" for unfavourable, and "None" for no effect (i.e, zero variance).) Direct labour rate variance Direct labour efficiency variance Total direct labour cost varianceExplanation / Answer
1)Material price variance =AQ[AR-SR]
= 12600 [12.5 - 12]
= 6300 U
Material qunaitity variance =SR[AQ-SQ]
12[12600- (2100*6)]
12 [12600-12600]
0
Total material variance = 6300 U +0 = 6300 U
2)Labor rate variance =AH[AR-SR]
= 7770 - [555*14]
= 7770-7770
= 0
Labor efficiency variance = SR[AH-SH]
=14[555-(2100 *.28571)]
= 14[555- 600]
= - 630 F
TOtal labor variance = 0 +(-630 F)= -630F
**standard Labor hours per unit = 4/14 =.28571
3)variable overhead rate variance = Actual cost -[AH*SR]
= 5000 - [555*7)
= 5000-3885
= 1115 U
Variable overhead efficiency variance = 7[555- (2100*.28571)]
7 [555 -600]
- 315 F
Total variable overhead variance =1115 U- 315 F= 800 U
Fixed overhead budget variance =Actual -budgeted
=15950-16200
=-250 F
Fixed overhead volume variance =BUdget -standard
= 16200 - [16200*2100/2285]
16200 - 14888.40
1311.60U
**standard fixed overhead =budgeted overhead *actual units/ budgeted units
Total fixed overhead variance : -250F+ 1311.60 = 1061.6 U
4)The statement is false
with increase in standard price per ,metre ,quantity variance will also be affected as quantity variance is given by :
Standard rate [AQ-SQ]
5)Correct otpion is "C" -in cost of direct material reported on flexible budget
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