Question

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 Variable Manufacturing Overhead $1.00 per pizza made Fixed Manufacturing Overhead $2.50 per pizza made 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 $ 7,800 Fixed Manufacturing Overhead $18,700 Pizzas Produced 7,980

Answer 1

(1) direct material price variance= (standard price-actual price) *Actual quantity

=(2-1.80)*8000

=1600 FAVORABLE (as the actual price is less than standard the variance is favorable)

2).material quantity variance

(standard quantity-actual quantity)*standard price

(1set*7980pizzas - 8000)*2

=40$ Unfavorable

3)direct labor rate variance

(Actual rate-standard rate)*Actual hours

(16800- 8*2070)

16800-16560

=240 U ACTUAL IS MORE THAN STANDARDTHE VARIANCE IS UNFAVORABLE

4) DIRECT LABOR EFFICIENCY VARIANCE

ACTUAL HOUR*STANDARD RATE -STANDARD HOUR*STANDARD RATE

standard hour for actual output = 7980*1/4 = 1995

(2070*8)-(1995*8)

=600 Unfavorable

5)VARIABLE SPENDING VARIANCE

= ACTUAL OVERHEAD - ACTUAL QUANTITY* STANDARD RATE

= 7800 - (7980*$1)

=7800-7980

=180 Favorable