Question:
Herzog Clothiers manufactures women's business suits. The company uses a standard cost accounting system. In March 2012, 15,700 suits were made. The following standard and actual cost data applied to the month of March when normal capacity was 20,000 direct labor hours. All materials purchased were used in production.
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Cost Element
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Standard (per unit)
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Actual
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Direct materials
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5 yards at $6.80 per yard
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$547,200 for 76,000 yards
($7.20 per yard)
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Direct labor
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1.0 hours at $11.50 per hour
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$166,880 for 14,900 hours
($11.20 per hour)
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Overhead
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1.0 hours at $9.30 per hour
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$120,000 fixed overhead
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(fixed $6.30; variable $3.00)
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$49,000 variable overhead
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Overhead is applied on the basis of direct labor hours. At normal capacity, budgeted fixed overhead costs were $126,000, and budgeted variable overhead costs were $60,000.
Instructions
(a) Compute the total, price, and quantity variances for (1) materials and (2) labor.
(b) Compute the total overhead variance.
(c) Which of the materials and labor variances should be investigated if management considers a variance of more than 5% from standard to be significant?