Brahma manufactures western hats. The company prepares flexible budgets and uses a standard cost system to control manufacturing costs. The following standard unit cost of a hat is based on the static budget volume of 14,000 hats per month:
| Direct materials (3.0 m2 × $6.00 per m2) | $18.00 |
| Direct labour (2 hours × $12 per hour) | 24.00 |
Manufacturing overhead:
| Variable (2 hours × $1.25 per hour) | $2.50 |
| Fixed (2 hours × $2.75 per hour) | 5.50 | 8.00 |
| Total cost per hat. | $50.00 |
Data for January of the current year include the following:
| a. | Actual production was 13,600 hats. |
| b. | Actual direct materials purchased and used was 2.70 m2 per hat at an actual cost of $6.30 per |
m
2.
| c. | Actual direct labour usage of 27,500 hours cost $385,000. |
| d. | Total actual overhead cost was $110,500. |
Required:
| 1. | Compute the price and efficiency variances for direct materials and direct labour. |
| 2. | For manufacturing overhead, compute the total variance, the flexible budget variance, and the |
production volume variance.
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