Question

Materials used ? Labour cost ? ? nal Entries (LO2, LO3. L04 PROBLEM 10B-3 Comprehensive Variance Analysis: Journal Entries ILO LOS. LO6, LO9] Haliburton Mills Inc. is a large producer of men's and women's clothing standard costs for all of its products. The standard costs and actual costs for are given below for one of the company's product lines (per unit of product 's clothing. The company uses al costs for a recent period Standard Cost Actual Cost $14.40 720 Direct materials: Standard: 40 metres at $3.60 per metre. Actual: 44 metres at $335 per metre.... Direct labour Standard: 16 hours at $4.50 per hour .... Actual: 14 hours at $485 per hour Variable manufacturing overhead: Standard: 16 hours at $180 per hour.... Actual: 14 hours at $2.15 per hour ...... Fixed manufacturing overhead: Standard: 16 hours at $3.00 per hour .... Actual: 14 hours at $305 per hour ...... Total cost per unit 288 480 $29.28 $2881 Adual costs: 4800 units at $2881 .......... Standard costs: 4800 units at $29.28...... Difference in cost-favourable............ $138.288 140.544 $ 2.256 . During this period, the company produced 4.800 units of product. A compare dard and actual costs for the period on a total cost basis is also given above. duct. A comparison of stan-

using Alternative method as shown in this picture

Answer 1

1.   a.

Actual Quantity of Inputs, at Actual Price

Actual Quantity of Inputs, at Standard Price

Standard Quantity Allowed for Output, at Standard Price

(AQ × AP)

(AQ × SP)

(SQ × SP)

21,120 metres × $3.35 per metre

21,120 metres × $3.60 per metre

19,200 metres* × $3.60 per metre

= $70,752

= $76,032

= $69,120

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Price Variance, -$5,280 F

Quantity Variance, $6,912 U

Total Variance, $1,632 U

      *4,800 units × 4.0 metres per unit = 19,200 metres

      Alternatively:

            Materials Price Variance = AQ (AP – SP)

            21,120 metres ($3.35 per metre – $3.60 per metre) = -$5,280 F

            Materials Quantity Variance = SP (AQ – SQ)

            $3.60 per metre (21,120 metres – 19,200 metres) = $6,912 U

b.	Raw Materials (21,120 metres @ $3.60 per metre)............................	76,032
	Materials Price Variance (21,120 metres @ $0.25 per metre F)......................................		5,280
	Accounts Payable (21,120 metres @ $3.35 per metre).........................................		70,752
	Work in Process (19,200 metres @ $3.60 per metre).........................	69,120
	Materials Quantity Variance (1,920 metres U @ $3.60 per metre)..............................................	6,912
	Raw Materials (21,120 metres @ $3.60 per metre).....................		76,032

2.   a.

Actual Hours of Input, at the Actual Rate

Actual Hours of Input, at the Standard Rate

Standard Hours Allowed for Output, at the Standard Rate

(AH × AR)

(AH × SR)

(SH × SR)

6,720 hours* × $4.85 per hour

6,720 hours × $4.50 per hour

7,680 hours** × $4.50 per hour

= $32,592

= $30,240

= $34,560

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Rate Variance, $2,352 U

Efficiency Variance, -$4,320 F

Total Variance, $1,968 F

*	4,800 units × 1.4 hours per unit = 6,720 hours
**	4,800 units × 1.6 hours per unit = 7,680 hours

      Alternatively:

            Labour Rate Variance = AH (AR – SR)

            6,720 hours ($4.85 per hour – $4.50 per hour) = $2,352 U

            Labour Efficiency Variance = SR (AH – SH)

            $4.50 per hour (6,720 hours – 7,680 hours) = -$4,320 F

b.	Work in Process (7,680 hours @ $4.50 per hour)..............................	34,560
	Labour Rate Variance (6,720 hours @ $0.35 per hour U).................................................	2,352
	Labour Efficiency Variance (960 hours F @ $4.50 per hour)..............................................		4,320
	Wages Payable (6,720 hours @ $4.85 per hour).........................		32,592

3.

Actual Hours of Input, at the Actual Rate

Actual Hours of Input, at the Standard Rate

Standard Hours Allowed for Output, at the Standard Rate

(AH × AR)

(AH × SR)

(SH × SR)

6,720 hours × $2.15 per hour

6,720 hours × $1.80 per hour

7,680 hours × $1.80 per hour

= $14,448

= $12,096

= $13,824

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Spending Variance, $2,352 U

Efficiency Variance, -$1,728 F

Total Variance, $624 U

      Alternatively:

            Variable Overhead Spending Variance = AH (AR – SR)

            6,720 hours ($2.15 per hour – $1.80 per hour) = $2,352 U

            Variable Overhead Efficiency Variance = SR (AH – SH)

            $1.80 per hour (6,720 hours – 7,680 hours) = -$1,728 F

4. Fixed overhead variances:

Actual Fixed Overhead Cost

Budgeted Fixed Overhead Cost

Fixed Overhead Cost Applied to Work in Process

6,720 hours × $3.05 per hour

6,860 hours × $3.00 per hour

7,680 × $3 per hour

= $20,496

= $20,580

= $23,040

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Budget Variance, -$84 F

Volume Variance, -$2,460 F

Alternative approach to the budget variance:

Budget variance = Actual fixed overhead – Flexible budget fixed overhead

                        $20,496 - $20,580 = -$84 F

Alternative approach to the volume variance:

Volume variance = Fixed Overhead Rate (Denominator hours – standard hours allowed)

            $3 per hour (6,860 hours – 7,680 hours) = -$2,460 F

5.   No. This total variance is made up of several quite large individual variances, some of which may warrant investigation. A summary of variances is given below:

Materials:
Price variance......................................................	$5,280	F
Quantity variance................................................	6,912	U		$1,632	U
Labour:
Rate variance.......................................................	2,352	U
Efficiency variance..............................................	4,320	F		1,968	F
Variable overhead:
Spending variance...............................................	2,352	U
Efficiency variance..............................................	1,728	F		624	U
Fixed overhead
Budget variance..................................................	84	F
Volume variance..................................................	2,460	F		2,544	F
Net favourable variance..........................................				$   2,256	F

6.   The variances have many possible causes. Some of the more likely causes include:

      Materials variances:

      Favourable price variance: Good price, inaccurate standards, inferior quality materials, unusual discount due to quantity purchased, drop in market price.

      Unfavourable quantity variance: Carelessness, poorly adjusted machines, unskilled workers, inferior quality materials, and inaccurate standards.

      Labour variances:

      Unfavourable rate variance: Use of highly skilled workers, change in wage rates, inaccurate standards, and overtime.

      Favourable efficiency variance: Use of highly skilled workers, high-quality materials, new equipment, and inaccurate standards.

      Variable overhead variances:

      Unfavourable spending variance: Increase in costs, inaccurate standards, waste, theft, spillage, and purchases in uneconomical lots.

      Favourable efficiency variance: Same as for labour efficiency variance.

Fixed overhead variances:

Favourable budget variance: Decreases in costs such as insurance, taxes, salaries, and maintenance that were not anticipated when the budget was set for fixed overhead.

      Favourable volume variance: greater use of available capacity than planned.