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


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


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.

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