Michael Roberts is a cost accountant and business analyst for HP Clothing Company (HPCC), which manufactures expensive T-shirts. HPCC uses two direct cost categories: direct materials and direct manufacturing labor. It allocates manufacturing overhead to production based upon labor hours used. At the beginning of 2020, HPCC adopted the following standards for each T-shirt: Standard Quantity Standard Price Or Hour 3.1 kg Or Rate $9 /kg Input Direct materials Direct labor 2 hours $8/hour Variable overhead 2 hours $5 /hour Actual results for April 2020 were as follows: Production 3,200 T-shirts Direct materials purchased Direct materials used 12,900 kg. at $10 kg 9,000 kg 7,200 hours for $59,000 Direct labor Variable manufacturing overhead $ 35,600 Required: a) Compute the standard variable product cost per unit. b) For the month of April 2020, compute the following variances, indicating whether each is favorable or unfavorable: i. Direct materials price variance, based on purchases ii. Direct materials quantity variance Direct labor rate variance iii. iv. Direct labor efficiency variance v. Variable manufacturing overhead rate variance vi. Variable manufacturing overhead efficiency variance c) Explain the possible reasons of any two unfavorable variances for direct costs and suggest the way to rectify them.
Michael Roberts is a cost accountant and business analyst for HP Clothing Company (HPCC), which manufactures expensive T-shirts. HPCC uses two direct cost categories: direct materials and direct manufacturing labor. It allocates manufacturing overhead to production based upon labor hours used. At the beginning of 2020, HPCC adopted the following standards for each T-shirt: Standard Quantity Standard Price Or Hour 3.1 kg Or Rate $9 /kg Input Direct materials Direct labor 2 hours $8/hour Variable overhead 2 hours $5 /hour Actual results for April 2020 were as follows: Production 3,200 T-shirts Direct materials purchased Direct materials used 12,900 kg. at $10 kg 9,000 kg 7,200 hours for $59,000 Direct labor Variable manufacturing overhead $ 35,600 Required: a) Compute the standard variable product cost per unit. b) For the month of April 2020, compute the following variances, indicating whether each is favorable or unfavorable: i. Direct materials price variance, based on purchases ii. Direct materials quantity variance Direct labor rate variance iii. iv. Direct labor efficiency variance v. Variable manufacturing overhead rate variance vi. Variable manufacturing overhead efficiency variance c) Explain the possible reasons of any two unfavorable variances for direct costs and suggest the way to rectify them.
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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Transcribed Image Text:Michael Roberts is a cost accountant and business analyst for HP Clothing Company (HPCC),
which manufactures expensive T-shirts. HPCC uses two direct cost categories: direct materials
and direct manufacturing labor. It allocates manufacturing overhead to production based upon
labor hours used.
At the beginning of 2020, HPCC adopted the following standards for each T-shirt:
Standard Quantity Standard Price
Or Hour
3.1 kg
Or Rate
$9 /kg
Input
Direct materials
Direct labor
2 hours
$8/hour
Variable overhead
2 hours
$5 /hour
Actual results for April 2020 were as follows:
Production
3,200 T-shirts
Direct materials purchased
Direct materials used
12,900 kg. at $10 kg
9,000 kg
7,200 hours for $59,000
Direct labor
Variable manufacturing overhead $ 35,600
Required:
a) Compute the standard variable product cost per unit.
b) For the month of April 2020, compute the following variances, indicating whether each is
favorable or unfavorable:
i. Direct materials price variance, based on purchases
ii. Direct materials quantity variance
Direct labor rate variance
iii.
iv. Direct labor efficiency variance
v. Variable manufacturing overhead rate variance
vi. Variable manufacturing overhead efficiency variance
c) Explain the possible reasons of any two unfavorable variances for direct costs and suggest
the way to rectify them.
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