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 20,000 hats per month:
| Direct materials (2.5 m2 × $5.00 per m2) | $12.00 |
| Direct labour (2 hours × $15 per hour) | 30.00 |
Manufacturing overhead:
| Variable (2 hours × $2.50 per hour). | $5.00 |
| Fixed (2 hours × $3.75 per hour) | 7.50 | 12.50 |
| Total cost per hat. | | $54.50 |
Data for January of the current year include the following:
| a. | Actual production was 22,000 hats. |
| b. | Actual direct materials purchased and used was 2.70 m2 per hat at an actual cost of $4.90 per |
m
2.
| c. | Actual direct labour usage of 45,500 hours cost $659,750. |
| d. | Total actual overhead cost was $290,000. |
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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Cost Accounting 14
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