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Thursday, 7 April 2016

Kohler Clothiers manufactures women’s business suits.

Kohler Clothiers manufactures women’s business suits. The company uses a standard cost accounting system. In March 2005, 11,800 suits were made. The following standard and actual cost data applied to the month of March when normal capacity was 15,000 direct labor hours. All materials purchased were used in production.

Cost element
Standard(per unit)
Direct materials
5 yards at $7.00 per yard
$410,400 for 57,000 yards($8.20 per yard)
Direct labor
1.0 hours at $12.00 per hour
$125,440 for 11,200 hours ($11.20 per hour)
1.0 hours at $9.30 per hour (fixed $6.30; variable $3.00)
$42,000 variable overhead

Overhead is applied on the basis of direct labor hours. At normal capacity, budgeted fixed overhead costs were $94,500, and budgeted variable overhead costs were $45,000.
(a) Compute the total, price, and quantity variances for (1) materials and (2) labor, and (3) the total, controllable, and volume variances for manufacturing overhead.
(b) Which of the materials and labor variances should be investigated if management considers a variance of more than 6% from standard to be significant? Discuss the potential causes of this variance.

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