Chapter 11, Problem 11.55BP

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

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

Direct material 18.0 yards per awning at $10.00 per yard

Direct labor 2.0 hours per awning at $13.00 per hour

Variable MOH standard rate $5.00 per direct labor hour

Predetermined fixed MOH standard rate $10.00 per direct labor hour

Total budgeted fixed MOH cost $34,000

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

Purchased 35.460 yards at a total cost of $333,324

Used 31,300 yards in producing 1.800 awnings

Actual direct labor cost of $45,457 for a total of 3,470 hours

Actual variable MOH cost $19,085

Actual fixed MOH cost $39,500

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?