Managerial Accounting

Peter s Pretty PJs makes and sells children s pajamas. The standard cost of one unit of this product is:

Direct Materials: 1.1 metre at $6.50 per metre

$ 7.15

Direct Labour: 1/2 hour at $10.00 per hour

$ 5.00

Variable Overhead: 1/2 Direct Labour hour at $7.50

$ 3.75

Total Standard Variable Cost per Unit


During the month of October, 60,000 units were produced. Selected cost data relating to the month’s production follow:

Material Purchased: 60,000 metres


Material Used in Production: 64,000 metres

Direct Labour: hours at $ per hr


Variable Overhead Cost Incurred


Variable Overhead Efficiency Variance

$ 7,500 unfavourable

There was no beginning inventory of raw materials. The variable overhead rate is based on direct labour-hours.



For direct materials, compute the price and quantity variances for the month.


For direct labour, compute the rate and efficiency variances for the month. Hint answer question 3 before this one.


For variable overhead, compute the spending variance for the month, and prove the efficiency variance given above.


Which variance should be investigated first, and who should be questioned? Explain your answers.