Question

Oakly Variance Case manufactures a single product, XR2. Oakly uses budgets and standards and control functions. Oakly makes use of its standards in order to budgeted cost per unit. For example, Exhibit A provides information on the budgeted variable costs per unit. When determining direct material costs for the planning (master) budget income statement, the $11.48 budgeted material cost per unit of XR2 would be used in the calculation. Exhibit A Budgeted (Standard) Variable Costs Per Unit of XR2 Raw material: 4.1 pounds at $2.80 per pound Direct labor: 1.2 direct labor hours at $24.00 per hour Variable overhead: 1.2 direct labor hours at $10.80 per hour Total variable budgeted (standard) cost per XR2 $11.48 28.80 12.96 $53.24 The standards for fixed manufacturing overhead costs are: 1.2 direct labor hours at $14.00 per hour. The standard fixed manufacturing overhead rate per hour is calculated based on a denominator level of activity of 45,000 direct labor hours. The planning budget income statement is based on the expectation of selling 38,000 units of XR2. The budgeted sales price is $76.00 per unit, and total budgeted fixed selling and administrative costs are $186,500. There are no variable selling and administrative costs in this firm. The company actually produced and sold 36,000 units this year. The company never has a beginning or ending raw materials inventory, because it uses all raw materials purchased. Also, the company never has a beginning or ending finished goods inventory. Everything produced in the year is sold in that same year.

Answer 1

(1) Direct materials price variance = (SP – AP) x AQ= (2.8-2.91) x 150,000= 16,500 $ Unfavorable

(2) Direct materials quantity variance = SP x (SQ – AQ)= 2.8 x (147,600- 150,000)= 6,720 Unfavorable

(3) Direct labor price variance = (SR – AR) x AH= (24-23.75) x 43,800= 10,950 Favorable

(4) Direct labor quantity variance = SR x (SH – AH)= 24 (43,200 - 43,800)= 14,400 Unfavorable

(5) Variable overhead spending variance = Actual costs − (AH × SR)= 482,000- (43,800 × 10.8)= 8,960 Unfavorable

(6) Variable overhead efficiency variance = (AH × SR) − (SH × SR)= (43,800 * 10.8) - (43,200 * 10.8)= 6,480 $ Unfavorable

(7) Fixed manufacturing Overhead Budget Variance= Actual Fixed Overhead- Budgeted Fixed overhead= 625,400- 638,400= 13,000 Favorable

(8)

Fixed manufacturing Overhead Volume Variance= Absorbed Fixed Overhead- Budgeted Fixed Overhead= 604,800- 638,400= 33,600 Unfavorable