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 cach Tshirt: Input Direct materials Standard Quantity Standand Price Or Hour 3.1 kg Or Rate $9 kg Direct labor 2 hours S8 hour Variable overhead S5 hour 2 hours Actual results for April 2020 were as follows: Production Direct materials purchased Direct materials used Direct labor Variable manufacturing overhead $ 35,600 3,200 T-shirts 12,900 kg at S10 kg 9,000 kg 7,200 hours for $59,000 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 iii. Direct labor rate variance Direct labor efficiency variance Variable manufacturing overhead rate variance vi. Variable manufacturing overhead efficiency variance e) 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 cach Tshirt: Input Direct materials Standard Quantity Standand Price Or Hour 3.1 kg Or Rate $9 kg Direct labor 2 hours S8 hour Variable overhead S5 hour 2 hours Actual results for April 2020 were as follows: Production Direct materials purchased Direct materials used Direct labor Variable manufacturing overhead $ 35,600 3,200 T-shirts 12,900 kg at S10 kg 9,000 kg 7,200 hours for $59,000 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 iii. Direct labor rate variance Direct labor efficiency variance Variable manufacturing overhead rate variance vi. Variable manufacturing overhead efficiency variance e) 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 cach Tshirt:
Input
Direct materials
Standard Quantity Standand Price
Or Hour
3.1 kg
Or Rate
$9 kg
Direct labor
2 hours
S8 hour
Variable overhead
S5 hour
2 hours
Actual results for April 2020 were as follows:
Production
Direct materials purchased
Direct materials used
Direct labor
Variable manufacturing overhead $ 35,600
3,200 T-shirts
12,900 kg at S10 kg
9,000 kg
7,200 hours for $59,000
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
iii. Direct labor rate variance
Direct labor efficiency variance
Variable manufacturing overhead rate variance
vi. Variable manufacturing overhead efficiency variance
e) Explain the possible reasons of any two unfavorable variances for direct costs and suggest
the way to rectify them.
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