Question

# Aaha Inc. produces premium protective automotive covers. The direct materials and direct labour standards for one...

 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.)

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

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