Question

Aaha Inc. produces premium protective automotive covers. The direct materials and direct labour standards for one car cover are as follows:

	Standard Quantity or Hours			Standard Price or Rate			Standard Cost
Direct materials		9.0	metres of cloth	$	10	per metre	$	90.00
Direct labour		0	hours	$	20	per hour	$	7
Variable overhead		0	hours	$	8	per hour	$	3

Budgeted fixed overhead cost is $17,400, and the normal production volume is 2,885 car covers. Overhead is applied on the basis of direct labour-hours.

     In September, the following activity was recorded:

•	24,300 metres of cloth were purchased at a cost of $10.50 per metre.
•	All of the purchased material was used to produce 2,700 car covers.
•	585 direct labour-hours were recorded at a total labour cost of $11,700.
Actual variable overhead cost was $5,600, and fixed overhead cost was $16,850.

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).)

  

      

3.	Calculate the total under- or overapplied overhead. Show all the variances calculated and indicate if each variance is favourable or unfavourable. (Indicate the effect of each variance by selecting "F" for favourable, "U" for unfavourable, and "None" for no effect (i.e., zero variance). Do not round intermediate calculations and round "Fixed overhead volume variance and total variance" to 2 decimal places.)

Answer 1

Solution:

Part 2 --- Direct labor cost variance

Labor Rate Variance
Actual Hourly Rate (AHR) ($11,700 / 585)	$20.00	Per Hour
Standard Hourly Rate (SHR)	$20.00	Per Hour
Variance or Difference in Rate	$0.0000	Per Hour
x Actual Labor Hours worked	160000	Hours
Labor Rate Variance	$0	None
Labor Quantity / Efficiency Variance
Standard Hours Allowed for actual production:
Actual Production	2700	Cover
x Allowed Standard Hours Per Unit ($7 std cost / $20 per hour)	0.35	hours
Total Standard Hours Allowed for actual production (SHAP)	945	hours
Actual Labor Hours Worked (AH)	585	hours
Variance or Difference in Hours	360	hours
x Standard Hourly Rate (SHR)	$20.00	per hour
Labor Efficiency Variance	$7,200	Favorable

Direct Labor Cost variance = $7,200 Favorable