Carol’s Dress Shop produces high quality formal dresses. InJanuary 2019 they produced 17,000 dresses. For the month ofJanuary, the following standard and actual cost data are available.The normal monthly capacity of the company is 30,000 direct laborhours. All material purchased in January was used in Januaryproduction.
| Standard per Dress | Actual |
Direct materials | 5.0 yards @ $8.00 per yard | $660,000 for 80,000 yards |
Direct labor | 1.5 hours @ $15.00 per hour | $384,000 for 24,000 hours |
Overhead | - hours @ $5.50 per hour
(fixed $3.40; variable $2.10) | $110,000 fixed overhead $52,000 variable overhead |
Overhead is applied on the basis of direct labor hours. Atnormal capacity, budgeted fixed overhead costs are $102,000 permonth and budgeted variable overhead costs are $63,000 permonth.
Required
- Calculate the variable overhead spending variance for January.Label the variance as favorable or unfavorable.
- Calculate the variable overhead efficiency variance forJanuary. Label the variance as favorable or unfavorable.
- Calculate the fixed overhead spending variance for January.Label the variance as favorable or unfavorable.
- Calculate the fixed overhead production volume variance forJanuary. Label the variance as favorable or unfavorable.
- Which of the variances should be investigated if managementconsiders a variance of more than 5% from standard to besignificant?
- Provide a discussion of the tradeoffs that are most likely toexist between the direct material and direct labor variances.
