Question

Save Homework: Chapter 23 Homework Assignment Score: 0 of 1 pt P23-27A (similar to) 1 of 1 (0 complete) HW Score: 0%, 0 of 1 pt Question Help SmartSound manufactures headphone cases. During September 2018, the company produced and sold 106,000 cases and recorded the following cost data: Click the icon to view the cost data.) Read the requirements Requirement 1. Compute the cost and efficiency variances for direct materials and direct labor Begin with the cost variances. Select the required formulas, compute the cost variances for direct materials and direct labor, and identify whether each variance is favorable (F) or unfavorable (U). (Abbreviations used: AC - actual cost; AQ - actual quantity, FOH - fixed overhead; SC standard cost; SQ - standard quantity) Formula Variance Direct materials cost variance Direct labor cost variance

Answer 1

Direct Materials Cost Variance = Actual Quantity * (Standard Rate - Actual Rate) = 208000 * (0.15 - 0.2) = -10400 unfavourable

Direct Materials Efficiency Variance = Standard Rate * (Standard Quantity - Actual Quantity) = 0.15 * (192000 - 208000) = -2400 unfavourable

Direct Labour Cost Variance = Actual hours * (Standard Rate - Actual Rate) = 1620 * (7 - 7.15) = -243 unfavourable

Direct Labour Efficiency Variance = Standard Rate * (Standard hours - Actual hours) = 7 * (1920 - 1620) = 2100 favourable

Actual hours worked = 1620 hours. Actual rate of variable overhead = 12000 / 1620 = 7.4074.  

Variable Overhead Cost Variance = Actual hours * ( Standard Rate - Actual Rate) = 1620 * (10 - 7.4074) = 4200 favourable

Variable Overhead Efficiency Variance = Standard Rate * (Standard hours - Actual hours) = 10 * (1920 - 1620) = 3000 favourable

Fixed Overhead Cost Variance = Actual hours * (Standard Rate - Actual Rate) = 1620 * 15 - 28000 = -3700 unfavourable

Fixed Overhead Volume Variance = Standard Fixed overhead absorption rate * (Standard hours - Actual hours) = 15 * (1920 - 1620) = 4500 favourable

Better quality materials will mean more productivity but will cost more. This will result in more favourable efficiency variance but more unfavourable cost variance.