Problem: Sacks manufactures embroidered jackets. The company prepares flexible budgets and uses a standar cost system to control manufacturing costs. The following standar unit cost of a jacket is based on the static budget volume of 14,000 jackets per month.
- Direct Materials (3.0 sq. ft x $4.00 per sq.ft) $12.00
- Direct labor (2 hours x $9.40 per hour) $18.80
Manufacturing overhead:
- Variable (2 hours x @$0.65 per hour) $1.30
- Fixed (2 hours x $2.20 per hour) $4.40
$5.70
Total Cost per jacket $36.50
DATA FOR NOVEMBER OF THE CURRENT YEAR INCLUDE THE FOLLOWING
- Actual production was 13,600 jackets
- Actual direct Materials usage was 2.70 square feet per jacket at an actual cost of $4.15 per square foot
- The amount of actual direct materials purchased was 40,000 square feet.
- Actual direct labor usage of 24,480 hours cost $235,008
- Total actual overhead cost was $79,000; $20,000 was variable
a) Compute the eight variance
Materials formula
Vp= (Actual Price per unit of input - Standard Price) x Actual quantity bought
Vq= (Actual quantity used - Standard quantity for actual level output achieve)x Std price.
LABOR
Vp= (Actual price per labor hours - Standard price) x Actual quantity
Vq= (Actual quantity - Standard Quantity) x Standard price
Variable Overhead
Ap= $actual Variable overhead/ Actual activity base
Aq= Actual activity base
SP= $estimate Variable over head/Estimated activity base.
Flexible Overhead
Vp= (AP-SP) x Aq
Vq= (Aq-SQ) x SP
Spending variable= Difference between the amount spend
Production Volume variable.