- Rain Gear, Inc., produces rain jackets. The master budget showsthe following standards information and indicates the companyexpected to produce and sell 28,000 units for the year. Variablemanufacturing overhead is allocated based on direct laborhours.
Direct materials | 4 yards per unit at $3 per yard |
Direct labor | 2 hours per unit at $10 per hour |
Variable mfg OH | 2 direct labor hours per unit at $4 per hour |
Rain Gear actually produced and sold30,000 units for the year. During the year, the company purchasedand used 130,000 yards of material for $429,000. A total of 65,000labor hours were worked during the year at a cost of $637,000.Variable overhead costs totaled $231,000 for the year.
- Company policy is to investigate all variances greater than 10percent of the flexible budget amount for each of the threevariable production costs: direct materials, direct labor, andvariable overhead. Identify which of the six variances calculatedin requirements bthrough eshouldbe investigated.
- Provide two possible explanations for each variance identifiedin requirement e.
