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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 2 hours 2 hours Or Rate $9 /kg $8/hour Input Direct materials Direct labor Variable overhead $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 S10 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 iii. Direct labor rate variance 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 2 hours 2 hours Or Rate $9 /kg $8/hour Input Direct materials Direct labor Variable overhead $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 S10 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 iii. Direct labor rate variance 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.

Principles of Cost Accounting
Principles of Cost Accounting
17th Edition
ISBN:9781305087408
Author:Edward J. Vanderbeck, Maria R. Mitchell
Publisher:Edward J. Vanderbeck, Maria R. Mitchell
Chapter2: Accounting For Materials
Section: Chapter Questions
Problem 17E: Davis Co. uses backflush costing to account for its manufacturing costs. The trigger points are the...
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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 2 hours 2 hours Or Rate $9 /kg $8/hour Input Direct materials Direct labor Variable overhead $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 S10 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 iii. Direct labor rate variance 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.
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 2 hours 2 hours Or Rate $9 /kg $8/hour Input Direct materials Direct labor Variable overhead $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 S10 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 iii. Direct labor rate variance 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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