Concept explainers
Direct-cost and
In 2017, Greenspace expected to make and sell 160,000 backpacks; each was budgeted to use 2 yards of fabric and require 0.5 hours of direct labor work. The company expected to pay $2 per yard for fabric and compensate workers at an hourly wage of $12. Greenspace has no variable overhead costs, but budgeted $800,000 for fixed manufacturing overhead in 2017.
In 2017, Greenspace actually made 180,000 backpacks and sold 144,000 of them for a total revenue of $2,592,000.
The costs incurred were as follows:
Fixed |
$ 875,000 |
Fabric costs (370,000 yards bought and used) | $ 758,500 |
Direct manufacturing labor costs (100,000 hours) | $1,260,000 |
- A. Compute the following variances for 2017, and indicate whether each is favorable (F) or unfavorable (U):
Required
- a. Direct materials efficiency variance
- b. Direct materials price variance
- c. Direct manufacturing labor efficiency variance
- d. Direct manufacturing labor price variance
- e. Fixed overhead flexible-
budget variance - f. Fixed overhead production-volume variance
- B. Compute Greenspace Company’s gross margin for its first year of operation.
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