Variance Analysis for Direct Materials, Direct Labor, and Variable Overhead. Rain Gear, Inc., produces rain jackets. The master budget shows the following standards information and indicates the company expected to produce and sell 28,000 units for the year.
| Direct materials |
4 yards per unit at $3 per yard |
| Direct labor |
2 hours per unit at $10 per hour |
| Variable manufacturing overhead |
2 direct labor hours per unit at $4 per hour |
Rain Gear actually produced and sold 30,000 units for the year. During the year, the company purchased 130,000 yards of material for $429,000 and used 118,000 yards in production. A total of 65,000 labor hours were worked during the year at a cost of $637,000. Variable overhead costs totaled $231,000 for the year.
Required:
- Calculate the materials price variance and materials quantity variance using the format shown in Figure 10.4 "Direct Materials Variance Analysis for Jerry's Ice Cream". Clearly label each variance as favorable or unfavorable.
- Calculate the labor rate variance and labor efficiency variance using the format shown in Figure 10.6 "Direct Labor Variance Analysis for Jerry's Ice Cream". Clearly label each variance as favorable or unfavorable.
- Calculate the variable overhead spending variance and variable overhead efficiency variance using the format shown in Figure 10.8 "Variable Manufacturing Overhead Variance Analysis for Jerry's Ice Cream". Clearly label each variance as favorable or unfavorable.
- Company policy is to investigate all variances greater than 10 percent of the flexible budget amount for each of the three variable production costs: direct materials, direct labor, and variable overhead. Identify which of the six variances calculated in requirements a through c should be investigated.
- Provide two possible explanations for each variance identified in requirement d