Preston manufactures embroidered jackets. The company prepares flexible budgets and uses a standard cost system to control manufacturing costs. The following standard unit cost of a jacket is based on the static budget volume of 13,800 jackets per month:

Data for November of the current year include the following:
a. Actual production was 13,400 jackets.
b. Actual direct materials usage was 2.80 m2 per jacket at an actual price of $4.00 per m2.
c. Actual direct labour usage of 24,600 hours cost $223,860.
d. Total actual overhead cost was $83,000.
Requirements
1. Compute the price and efficiency variances for direct materials and direct labour.
2. For manufacturing overhead, compute the total variance, the flexible budget variance, and the production volume variance.
3. Preston€™s management intentionally purchased superior materials for November production. How did this decision affect the other cost variances? Overall, was the decision wise?

Transcribed Image Text:

Direct materials (3.0 m2 x $3.90 per m2) Direct labour (2 hours x $9.00 per hour) Manufacturing overhead: $11.70 18.00 Variable (2 hours x $0.67 per hour) Fixed (2 hours x $2.40 per hour) $1.34 6.14 $35.84 4.80 Total cost per jacket