Question

Rudd Clothiers is a small company that manufactures tall-men’s suits. The company has used a standard cost accounting system. In May 2017, 10,500 suits were produced. The following standard and actual cost data applied to the month of May when normal capacity was 15,500 direct labor hours. All materials purchased were used.

Cost Element		Standard (per unit)		Actual
Direct materials		7 yards at $4.20 per yard		$300,915 for 74,300 yards ($4.05 per yard)
Direct labor		1.10 hours at $13.00 per hour		$164,255 for 12,350 hours ($13.30 per hour)
Overhead		1.10 hours at $6.50 per hour (fixed $3.60; variable $2.90)		$48,500 fixed overhead $37,500 variable overhead

Overhead is applied on the basis of direct labor hours. At normal capacity, budgeted fixed overhead costs were $55,800, and budgeted variable overhead was $44,950.

(a)

Compute the total, price, and quantity variances for (1) materials and (2) labor. (Round answers to 0 decimal places, e.g. 125.)

(1)		Total materials variance		$		Neither favorable nor unfavorableUnfavorableFavorable
		Materials price variance		$		UnfavorableFavorableNeither favorable nor unfavorable
		Materials quantity variance		$		FavorableNeither favorable nor unfavorableUnfavorable
(2)		Total labor variance		$		UnfavorableFavorableNeither favorable nor unfavorable
		Labor price variance		$		FavorableNeither favorable nor unfavorableUnfavorable
		Labor quantity variance		$		Neither favorable nor unfavorableFavorableUnfavorable

(b)

Compute the total overhead variance.

Total overhead variance

$

UnfavorableFavorableNeither favorable nor unfavorable

Answer 1

(a) 1. Total Material variance = (Standard cost - actual cost)

= 10500*7*4.20-74300*4.05 = $7785 favorable

Material price variance = (Standard price - actual price)*actual quantity

= (4.20-4.05)*74300 = $11145 Favorable

Material quantity variance = (Standard quantity - actual quantity)*standard rate

= (10500*7-74300)*4.20 = $3360 Unfavorable

2. Total labor variance = 10500*1.10*13-12350*13.30 = $14105 unfavorable

Labor rate variance = (standard rate - actual rate)*actual hours

= (13-13.30)*12350= $3705 Unfavorable

Labor efficiency variance = (standard hours - actual hours)*standard rate

= (10500*1.10-12350)*13 = $10400 Unfavorable

b. Total overhead variance = (15500*1.10*3.60+10500*1.10*2.90)-(48500+37500) = $8875 Favorable