Variance analyses for direct materials and labor

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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.

Required elements:

In good form in Microsoft Excel perform the following tasks:

1. Prepare the static budget operating income in contribution format.

2. If sales demand increases to 11,500 units for September, prepare the flexible budget for September in contribution format to reflect the new data.

3. Compute and reconcile the sales volume variance, indicating whether the variance is favorable or unfavorable.

4. 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

5. 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.

6. Below each variance calculation neatly provide one possible explanation for each of the variances.