# Principles of Cost Accounting: P8-13 Poway Shirts, Inc., manufactures men’s sport shirts

Principles of Cost Accounting

P8-13 Variance analysis
Poway Shirts, Inc., manufactures men’s sport shirts for large stores. Folsom produces a single quality shirt in lots of a dozen according to each customer’s order and attaches the store’s label.
The standard costs for a dozen shirts include the following:
Direct materials [email protected]\$0.55 13.20
Direct labor [email protected]\$7.35 22.05
Standard cost per dozen 41.25

During October, Poway worked on three orders for shirts. Job cost records for the month disclose the following:
Lot Units in Lot Materials Used Hours Worked
30 1,000 dozen 24,100 yards 2,980
31 1,700 dozen 40,440 yards 5,130
32 1,200 dozen 28,825 yards 2,890
The following information is also available:
a. Poway purchased 95,000 yards of materials during October at a cost of \$53,200. The materials price variance is recorded when goods are purchased, and all inventories are carried at standard cost.
b. Direct labor incurred amounted to \$81,400 during October. According to payroll records, production employees were paid \$7.40 per hour.
c. Overhead is applied on the basis of direct labor hours. Factory overhead totaling \$22,800 was incurred during October.
d. A total of \$288,000 was budgeted for overhead for the year, based on estimated production at the plant’s normal capacity of 48,000 dozen shirts per year. Overhead is 40% fixed and 60% variable at this level of production.
e. There was no work in process at October 1. During October, Lots 30 and 31 were completed, and all materials were issued for Lot 32, which was 80% completed as to labor and overhead.

Required:
1. Prepare a schedule computing the October standard cost of Lots 30, 31, and 32.
2. Prepare a schedule computing the materials price variance for October and indicate whether it is favorable or unfavorable.
3. For each lot produced during October, prepare schedules computing the following (indicate whether favorable or unfavorable):
a. Materials quantity variance in yards.
b. Labor efficiency variance in hours. (Hint: Don’t forget the percentage of completion.)
c. Labor rate variance in dollars.
4. Prepare a schedule computing the total controllable and volume overhead variances for October and indicate whether they are favorable or unfavorable.