Question

Question 3: Variance Analysis (20 marks in total) A Chill Menu Company produces cases of frozen food. During April, the company produced 1,450 cases of food and mcurred the followimg actual costs Variable overhead Fixed overhead Actual direct labour cost (8,000 direct labour hours) Actual material cost (30,000 kilograms purchased and 11000 26000 151200 66000 used Standard cost and annual budget information is as follows Standard cost per case Direct labour (5 hours S18) Direct material (20 kilograms @ S2) Variable overhead (5 hours @S1.50) Fixed overhead (5 hours @ S3) Total 90 40 15 152.5 Annual budget information S150,000 S300,000 100,000 Variable overhead Fixed overhead Planned activity for year (direct labour hours) Required 1. Prepare a 2. Construct an analysis of cost variance as is possible from the available data. spreadsheet to answer requirement 1. Show how the solution will change if the following mformation changes Standard direct labour hour rate is $19 per hour Standard variable overhead rate is $1.80 per direct labour hour. o o
Question 3: Variance Analysis (20 marks in total)

A Chill Menu Company produces cases of frozen food. During April, the company produced 1,450 cases of food and incurred the following actual costs:

Variable overhead	11000
Fixed overhead	26000
Actual direct labour cost (8,000 direct labour hours)	151200
Actual material cost (30,000 kilograms purchased and used	66000

Standard cost and annual budget information is as follows:

	Standard cost per case
Direct labour (5 hours @ $18)	90
Direct material (20 kilograms @ $2)	40
Variable overhead (5 hours @ $1.50)	7.5
Fixed overhead (5 hours @ $3)	15
Total	152.5
	Annual budget information
Variable overhead	$150,000
Fixed overhead	$300,000
Planned activity for year (direct labour hours)	100,000

Required

1. Prepare a complete analysis of cost variance as is possible from the available data.
2. Construct an Excel spreadsheet to answer requirement 1. Show how the solution will change if the following information changes:
   • Standard direct labour hour rate is $19 per hour.
   • Standard variable overhead rate is $1.80 per direct labour hour.

Answer 1

(1) Compute material variances: Standard Actual Total Total Quantity Rate Quantity Rate $2 $2.20 $66,000 29,000 58,000 30,000 Material Price Variance (Standard Price -Actual Price)x Actual Units - (S2-$2.20)x30,000 $6,000 Unfavorable Material Volume Variance (Stan dard units -Actual units) x S tan dard Rate (29,000-30,000) x $2 = - $2,000 Unfavorable Compute labor variances: Actual Standard Hours Rate Total Hours Rate Total 8,000 $18.90 $151,200 $18 $130,500 7,250 Labor Cost Rate Variance (Standard Rate - Actual Rate)x Actual Hours (S18-$18.90)x 8,000 - $7,200 Unfavorable Labor Cost Efficiency Variance (Standard Hours -Actual Hours)x Standard Rate (7,250-8,000)x$18 - $13,500 Unfavorable Efficiency variance arises when actual production differs from the actual labor hours used Spending variance arises when the price set by the management differs from the amount paid by the management

Compute variable overhead cost variance: Standard Actual Total Hours Rate Hours Rate Total $1.50 $10,875 $1.375 $11,000 7,250 8,000 Variable Overhead Spending Variance (Standard Rate -Actual Rate)xActual Hours - ($1.50-$1.375)x8,000 =$1, 000 Favorable Variable Overhead Efficiency Variance (Standard Hours-Actual Hours)xStandard Rate -(7,250-8,000)x$1.50 -$1,125 Unfavorable Compute fixed overhead cost variance: Budget Actual Total Units Units Rate Total 1,666.67 $25,000 $26,000 $15 1,450 Fixed Overhead Budget Variance Actual Fixed Overhead-Budgeted Fixed Overhead - $26,000-$25,000 - $1,000 Unfavorable Fixed Overhead Application Rate Budgeted Fixed Cost Budgeted Production $25,000 1,666.67 = $15 per unit Fixed Overhead Volume Variance Budgeted Fixed Overhead-Applied Fixed Overhead -$25,000-(1,450x$15) -$3,250 Unfavorable

(2) Spreadsheet to analyze cost variances for Company C Material Cost Variance Standard Actual -6,000 U Price Variance Volume Qty Rate Total Qty Rate Total -2,000 U Variance 58,000 30,000 29,000 2 2.2 66,000 Labor Cost Variance Rate Variance Standard Actual 800 F Rate Total Efficiency Hours Hours Rate Total -14,250 U Variance 7.250 137,750 151,200 19 8,000 18.9 Variable Overhead Cost Variance Actual Spending variance Efficiency Variance Standard 3,400 F Total Hours Rate Hours Rate Total -1,350 U 8,000 7,250 1.8 11,600 1.375 11,000 Workings: - AH (AR SR) 8,000 hrs. ($18.90 $19.00) Direct labor rate variance = $800 F -SR (AH SH) - $ 19 (8,000 hrs. 7,250 hrs.) Direct labor efficiency variance = $14,250 U Variable overhead spending variance Actual variable overhead (AH x SVR) - $ 11,000 (8,000 x$1.80) - $11,000 $14,400 $3,400 F Variable overhead efficiency variance SVR (AH SH) $1.80 (8,000 hrs. - 7,250 hrs.) - $1,350 U