Question

Note: This section is a continuation from Parts A and B of the comprehensive problem. Be sure you have completed Parts A and B before attempting Part C. You may have to refer back to data presented in Parts A and B as well as use answers from those parts when completing this section.

Genuine Spice Inc. began operations on January 1 of the current year. The company produces eight- ounce bottles of hand and body lotion called Eternal Beauty. The lotion is sold wholesale in 12-bottle cases for $100 per case. There is a selling commission of $20 per case. The January direct materials, direct labor, and factory overhead costs are as follows:

DIRECT MATERIALS Cost Behavior Units per Case Cost per Unit Direct Materials Cost per Case Cream base Variable 100 ozs. $0.02 $2.00 Natural oils Variable 30 ozs. 0.30 9.00 Bottle (8-oz.) Variable 12 bottles 0.50 6.00 $17.00 DIRECT LABOR Department Cost Behavior Time per Case Labor Rate per Hour Direct Labor Cost per Case Mixing Variable 20 min. $18.00 $6.00 Filling Variable 5 14.40 1.20 25 min. $7.20 FACTORY OVERHEAD Cost Behavior Total Cost Utilities Mixed $600 Facility lease Fixed 14,000 Equipment depreciation Fixed 4,300 Supplies Fixed 660 $19,560

Part C—August Variance Analysis

During September of the current year, the controller was asked to perform variance analyses for August. The January operating data provided the standard prices, rates, times, and quantities per case. There were 1,500 actual cases produced during August, which was 250 more cases than planned at the beginning of the month. Actual data for August were as follows:

	Actual Direct Materials Price per Unit		Actual Direct Materials Quantity per Case
Cream base	$0.016	per oz.	102	ozs.
Natural oils	$0.32	per oz.	31	ozs.
Bottle (8-oz.)	$0.42	per bottle	12.5	bottles

	Actual Direct Labor Rate	Actual Direct Labor Time per Case
Mixing	$18.20	19.50 min.
Filling	14.00	5.60 min.
Actual variable overhead	$305.00
Normal volume	1,600 cases

The prices of the materials were different from standard due to fluctuations in market prices. The standard quantity of materials used per case was an ideal standard. The Mixing Department used a higher grade labor classification during the month, thus causing the actual labor rate to exceed standard. The Filling Department used a lower grade labor classification during the month, thus causing the actual labor rate to be less than standard.

Required:

10. Determine and interpret the direct materials price and quantity variances for the three materials. Enter the costs in dollars and cents (carried to three decimal places when required). Enter all amounts as positive numbers.

Direct Materials Price Variance:
	Cream Base		Natural Oils		Bottles
Actual price	$		$		$
Standard price
Difference	$		$		$
Actual quantity (units)	X	ozs.	X	ozs.	X	btls.
Direct materials price variance	$		$		$
Indicate if favorable or unfavorable	Favorable		Unfavorable		Favorable

Enter the standard price to two decimal places.

Direct Materials Quantity Variance:
	Cream Base		Natural Oils		Bottles
Actual quantity		ozs.		ozs.		btls.
Standard quantity
Difference		ozs.		ozs.		btls.
Standard price	X $		X $		X $
Direct materials quantity variance	$		$		$
Indicate if favorable or unfavorable	Unfavorable		Unfavorable		Unfavorable

The fluctuation in   caused the direct material price variances. All the quantity variances were   indicating  .

11. Determine and interpret the direct labor rate and time variances for the two departments. Do not round hours. Enter the costs in dollars and cents. Enter all amounts as positive numbers.

Direct Labor Rate Variance:
	Mixing Department		Filling Department
Actual rate	$		$
Standard rate
Difference	$		$
Actual time (hours)	X		X
Direct labor rate variance	$		$
Indicate if favorable or unfavorable	Unfavorable		Favorable

Direct Labor Time Variance:
	Mixing Department		Filling Department
Actual time (hours)
Standard time (hours)
Difference
Standard rate	X $		X $
Direct labor time variance	$		$
Indicate if favorable or unfavorable	Favorable		Favorable

The change in the   caused the labor rate variances. This change   have been responsible for the direct labor time variance.

12. Determine and interpret the factory overhead controllable variance. Enter all amounts as positive numbers.

Actual variable overhead	$
Variable overhead at standard cost
Factory overhead controllable variance	$
Indicate if favorable or unfavorable	Unfavorable

The factory overhead controllable variance was caused by the variance in  .

13. Determine and interpret the factory overhead volume variance. When determining the fixed factory overhead rate, round the factory overhead rate to two decimal places and the factory overhead volume variance to whole dollars. Enter all amounts as positive numbers.

Normal volume (cases)
Actual volume (cases)
Difference
Fixed factory overhead rate	$
Factory overhead volume variance	$
Indicate if favorable or unfavorable	Unfavorable

The volume variance indicates the cost of operating at full capacity .

14. Why are the standard direct labor and direct materials costs in the calculations for parts (10) and (11) based on the actual 1,500-case production volume rather than the planned 1,375 cases of production used in the budgets for parts (6) and (7)?

Answer 1

Direct Materials Price Variance: Bottles 0.42 0.5 Actual price Standard price Difference Actual quantity (units) Direct materials price variance Indicate if favorable or unfavorable Cream Base 0.016 0.02 -0.004 153000 ozs. -612 Natural Oils 0.32 0.3 0.02 46500 ozs. 930 -0.08 18750 btls. -1500 (UF) (F) Direct Materials Quantity Variance: Actual quantity Standard quantity Difference Standard price Direct materials quantity variance Indicate if favorable or unfavorable Cream Base 153000 oz. 150000 3000 ozs. 0.02 Natural Oils 46500 ozs. 45000 1500 ozs. 0.3 450 (UF) Bottles 18750 btls. 18000 750 btls. 0.5 375 (UF) 60 (UF)

72 11. Determine and interpret the direct labor rate and time variances for the two departments. Direct Labor Rate Variance: Mixing Department Filling Department 14 Actual rate Standard rate Difference Actual time (hours) Direct labor rate variance Indicate if favorable or unfavorable 18.2 18 0.20 488 97.60 14.4 -0.40 140 -56.00 (F) (UF) Direct Labor Time Variance: Mixing Department Actual time (hours) Standard time (hours) Difference Standard rate Direct labor time variance Indicate if favorable or unfavorable 488 500 -12 18 -216 Filling Department 140 125 15 14.4 216 (UF) (F) 12. Determine and interpret the factory overhead controllable variance. 94 Actual variable overhead Variable overhead at standard cost Factory overhead controllable varian 305 300

92 12. Determine and interpret the factory overhead controllable variance. 305 300 Actual variable overhead Variable overhead at standard cost Factory overhead controllable variant Indicate if favorable or unfavorable 97 (UF) 101 102 99 13. Determine and interpret the factory overhead volume variance. When determining the fixed factory overhead rate, rou 100 Normal volume (cases) 1600 Actual volume (cases) 1500 103 Difference 100 Fixed factory overhead rate 12.1625 Factory overhead volume variance 1216.25 Indicate if favorable or unfavorable (UF) 105 106 107 108