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Calculating Variance Analyses for Direct Materials and Labor
The Hockey Helmet Company expects increased demand for its hockey helmets at the beginning of hockey season in September.
Here is the projected data for September:
|The Hockey Company||Variable Costs Total||Fixed Costs Total|
|Raw materials||$ 325,000|
|Direct manufacturing labor||$ 170,000|
|Indirect manufacturing labor||$ 22,500|
|Factory Insurance & Utilities||$ 34,000|
|Depreciation ? Machinery and factory||$ 18,500|
|Repairs and maintenance ? factory||$ 17,000|
|Distribution expenses||$ 20,000||$ 40,000|
|General and administrative expenses||$ 30,000|
|Variable Cost and Volume Data|
|Raw materials = 3.25 lbs. x $10.00/lb.||$ 32.50|
|Direct Labor = 1.7 hr. x $10/hr.||$ 17.00|
|Volume in units||10,000|
Sales price per helmet is $90.
In good form in Microsoft Excel perform the following tasks:
- Prepare the static budget operating income in contribution format.
- If sales demand increases to 11,500 units for September, prepare the flexible budget for September in contribution format to reflect the new data.
- Compute and reconcile the sales volume variance, indicating whether the variance is favorable or unfavorable.
- Given the following additional actual data:
Total Direct Costs Incurred for September Raw Materials =35,100 lbs. used $ 351,000 Direct Labor =18,360 hrs. incurred $ 183,600 Volume in units 10,800
Using the three-prong method to present your calculations, compute the direct materials price variance, the direct materials efficiency variance, the labor price variance, and the labor efficiency variance, indicating whether these are favorable or unfavorable.
- Below each variance calculation neatly provide one possible explanation for each of the variances.
Submit your responses in an Excel spreadsheet, neatly organized.
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