Managerial Accounting: P5 Clean Sweep Company produces all-vinyl mats

Managerial Accounting
P5 Computing Variances and Evaluating Performance
Clean Sweep Company produces all-vinyl mats. Each doormat calls for 0.5 meter of vinyl material; the material should cost $3 per meter. Standard direct labor hours and labor cost per doormat are 0.3 hour and $6 (0.3 hour × $20 per hour), respectively. Currently, the division's standard variable overhead rate is $1.50 per direct labor hour, and its standard fixed overhead rate is $0.80 per direct labor hour.
In August, the division manufactured and sold 50,000 doormats. During the month, it used 25,200 meters of vinyl material; the total cost of the material was $73,080. The total actual overhead costs for August were $28,200, of which $18,200 was variable. The total number of direct labor hours worked was 10,800, and the factory payroll for direct labor for the month was $214,920. Budgeted fixed overhead for August was $9,280. Normal monthly capacity for the year was set at 58,000 doormats.

1. Compute for August the (a) direct materials price variance, (b) direct materials quantity variance, (c ) direct labor rate variance, (d) direct labor efficiency variance, (e ) variable overhead spending variance, (f) variable overhead efficiency variance, (g) fixed overhead budget variance, and (h) fixed overhead volume variance.
2. Business Application: Prepare a performance report based on your variance analysis, and suggest possible causes for each variance.
Powered by