Question

managerial accounting

Edwardsville Pizzeria makes one of the most delicious pepperoni pizzas in their geographical area. Since their pizzas are hand made to order but they must compete with many of the large pizza chains on the basis of price, they want to make sure that they very tightly control the costs to make a pizza without sacrificing any quality in the process. They have established the following standards for operations. EDWARDSVILLE PIZZERIA PEPPERONI PIZZA STANDARDS Direct Materials (Dough, Sauce, Pepperoni) 1 set (as defined by Mario) at $2.00 per set Direct Labor 1/4 hour at $8.00 per hour $1.00 per pizza made $2.50 per pizza made Variable Manufacturing Overhead Fixed Manufacturing Overhead The manufacturing overhead rates are based upon a normal capacity of 8,000 pizzas per month. For the month of February, Edwardsville Pizzeria had the following operating results. EDWARDSVILLE PIZZERIA ACTUAL RESULTS FOR THE MONTH OF FEBRUARY Direct Materials (Dough, Sauce, Pepperoni) 8,000 sets purchased and used at $1.80 per set Direct Labor 2,070 hours at a total cost of $16,800 Variable Manufacturing Overhead Fixed Manufacturing Overhead Pizzas Produced $ 7,800 s18,700 7,980

Answer 1

1) Direct materials price variance = (Std price - Actual Price)*Actual quantity

= ($2.00 - $1.80)*8,000 sets = 1,600 Favorable

2) Std Qty for actual production = 7,980 pizzas*1 set per pizza = 7,980 sets

Direct materials quantity variance = (Std Qty for Actual production - Actual Qty)*Std Price per set

= (7,980 - 8,000)*$2.00 = $40 Unfavorable

3)Direct labor rate variance = (Std rate*Actual hours) - Actual labor cost

= ($8*2,070 hrs) - $16,800

= $16,560 - $16,800 = $240 Unfavorable

4) Std hours for actual production = 7,980 pizzas*1/4 hr = 1,995 hours

Direct labor efficiency variance = (Std hours for actual production- Actual hours)*Std rate per hour

= (1,995 hrs - 2,070 hrs)*$8 per hour = $600 Unfavorable

5) Std Variable overhead rate per hour = $1.00 per pizza/0.25 hr per pizza = $4 per hour

Variable Overhead Spending variance = (Std VOH rate*Actual hours) - Actual variable overhead

= ($4*2,070 hrs) - $7,800

= $8,280 - $7,800 = $480 Favorable

6) Variable Overhead Efficiency variance = (Std hours for actual production- Actual hours)*Std VOH rate

= (1,995 hrs - 2,070 hrs)*$4 per hour = $300 Unfavorable

7) Fixed Overhead spending variance = Budgeted Fixed Overhead - Actual Fixed Overhead

= (8,000 pizzas*$2.50) - $18,700

= $20,000 - $18,700 = 1,300 Favorable

8) Fixed overhead volume variance = Applied Fixed Overhead - Budgeted Fixed Overhead

= (7,980 pizzas*$2.50) - $20,000

= $19,950 - $20,000 = $50 Unfavorable