OP Income and Labor Rate Variance
1. The following product line information is for the Clara's Clothing Shop Company. The company is considering dropping its Children's product line due to poor operating income performance. Fixed expenses are allocated to each product line based on sales revenue.
Active Wear Clothing
Men's Women's Children's
Sales $15,000 $25,000 $20,000
Variable expenses 5,000 7,500 12,500
Fixed expenses (50% of sales) 7,500 12,500 10,000
Operating income $2,500 $5,000 ($2,500)
Required:
A) Calculate the effect on the George's operating income if the Children's active wear clothing line is discontinued. Comment on your analysis.
B) Assume George's discontinues its Children's active wear clothing line, calculate the total operating income.
2 The standards for one carton of New-DMO are:
Direct materials 3.2 lbs @ $6.00 lb
Direct labor 2.4 hrs @ $10.00 hr
During the week ended May 17, the following activity took place:
• 4,800 lbs. of raw material were purchased for inventory at a cost of $5.60 per pound;
• 1,200 cartons of finished product were produced;
• 4,020 lbs. of raw material were used;
• 3,110 labor hours were worked at a total cost of $26,435.
Required:
Evaluate each of the following variances:
A) Raw materials purchase price variance.
B) Raw materials usage variance.
C) Direct labor rate variance.
D) Direct labor efficiency variance: