Chapter 11, Problem 11.50AP

Comprehensive standards and variances problem (Learning Objectives 1, 2, 3, 5, & 6)

Conrad Awning manufactures awnings and uses a standard cost system. The company allocates overhead based on the number of direct labor hours. The following are the company’s cost and standards data:

Standards:

Direct materials 24.0 yards per awning at $11.00 per yard

Direct labor 2.0 hours per awning at $12.00 per hour

Variable MOH standard rate $7.00 per direct labor hour

Predetermined fixed MOH standard rate $8.00 per direct labor hour

Total budgeted fixed MOH cost $21,700

Actual cost and operating data from the most recent month are as follows:

Purchased 38,400 yards at a total cost of $399,360

Used 34,900 yards in producing 1,500 awnings

Actual direct labor cost of $34,727 for a total of 2,870 hours

Actual variable MOH $20,377

Actual fixed MOH $26,200

All manufacturing overhead is allocated on the basis of direct labor hours.

Requirements

1. 1. Calculate the standard cost of one awning.
2. 2. Calculate the following variances:
   1. a. The direct material variances.
   2. b. The direct labor variances.
   3. c. The variable manufacturing overhead variances.
   4. d. The fixed manufacturing overhead variances.
3. 3. Explain what each of the variances you calculated means and give at least one possible explanation for each of those variances. Are any of the variances likely to be interrelated?