Question

[The following information applies to the questions displayed below.]

Trico Company set the following standard unit costs for its single product.

Direct materials (30 Ibs. @ $5.10 per Ib.)	$	153.00
Direct labor (8 hrs. @ $14 per hr.)		112.00
Factory overhead—variable (8 hrs. @ $6 per hr.)		48.00
Factory overhead—fixed (8 hrs. @ $12 per hr.)		96.00
Total standard cost	$	409.00

The predetermined overhead rate is based on a planned operating volume of 80% of the productive capacity of 52,000 units per quarter. The following flexible budget information is available.

	Operating Levels
		70%		80%		90%
Production in units		36,400		41,600		46,800
Standard direct labor hours		291,200		332,800		374,400
Budgeted overhead
Fixed factory overhead	$	3,993,600	$	3,993,600	$	3,993,600
Variable factory overhead	$	1,747,200	$	1,996,800	$	2,246,400

During the current quarter, the company operated at 90% of capacity and produced 46,800 units of product; actual direct labor totaled 370,400 hours. Units produced were assigned the following standard costs.

Direct materials (1,404,000 Ibs. @ $5.10 per Ib.)	$	7,160,400
Direct labor (374,400 hrs. @ $14 per hr.)		5,241,600
Factory overhead (374,400 hrs. @ $18 per hr.)		6,739,200
Total standard cost	$	19,141,200

Actual costs incurred during the current quarter follow.

Direct materials (1,385,000 Ibs. @ $6.70 per lb.)	$	9,279,500
Direct labor (370,400 hrs. @ $11.50 per hr.)		4,259,600
Fixed factory overhead costs		3,196,600
Variable factory overhead costs		3,016,800
Total actual costs	$	19,752,500

Problem 21-4A Computation of materials, labor, and overhead variances LO P2, P3

Required:
1. Compute the direct materials cost variance, including its price and quantity variances.

AQ = Actual Quantity
SQ = Standard Quantity
AP = Actual Price
SP = Standard Price
Actual Cost Standard Cost

Answer 1

Please note that I have solved all the required variances for your reference. Additionally I have also provided you the different formula that can be used for calculating variances.

Variable Overhead Total Variance@ (Standard Variable Overheads for Production - Actual Variable Overheads) Variable Overhead Variable Overhead Expenditure (Spending) Variance Efficiency Variance (Budgeted Variable Overheads for Actual (Standard Variable Overheads for Hours*) Production) Less Less (Actual Variable Overheads) (Budgeted Variable Overheads for Actual Hours) * Actual Hours (Worked) Note: Standard Variable Overheads for Production/Charged to Production = Standard/Budgeted Variable Overhead Rate per Unit Actual Production (Units) = Standard Variable Overhead Rate per Hour Standard Hours for Actual Production Actual Overheads Incurred Budgeted Variable Overheads for Actual Hours - Standard Variable Overhead Rate per Hour * Actual Hours (@) = Variable Overhead Total Variance also known as 'Variable Overhead Cost Variance Variable Overhead Efficiency Variance (Standard Variable Overheads for Production) - (Budgeted Overheads for Actual Hours) Or (Standard Variable Overhead Rate per Hour Standard Hours for Actual Output) - (Standard Variable Overhead Rate per Hour * Actual Hours) Or Standard Variable Overhead Rate per Hour (Standard Hours for Actual Output - Actual hours) Variable Overhead Expenditure Variance (Budgeted Variable Overheads for Actual Hours) - (Actual Variable Overheads) Or (Standard Rate per Hour Actual Hours) - (Actual Rate per Hour Actual Hours) Or Actual Hours (Standard Rate per Hour - Actual Rate per Hour)

Direct Labour Variances Direct Labour Total Variance (Standard Cost? - Actual Cost] (The difference between the Standard Direct Labour Cost and the Actual Direct Labour Cost incurred for the production achieved) [(SH X SR) - (AH* * AR) Direct Labour Direct Labour Direct Labour Rate Variance Idle Time Variance Efficiency Variance [Standard Cost of Actual Time - (Standard Rate per Hour x [Standard Cost of Standard Actual Cost] Actual Idle Hours) Time for Actual Production - Standard Cost of Actual Time) (The difference between the (The difference between the Actual(The difference between the Standard Rate per hour and Actual Hours paid and Actual Hours Standard Hours specified for Rate per hour for the Actual Hours worked at Standard Rate) actual production and Actual Hours paid) worked at Standard Rate) [(SR-AR) * AH"] [(AH - AH*) * SR] Or [(SH - AH*) * SR] [(SR * AH*) - (AR * AH*)] [(AH' x SR) – (AH* x SR)] Or [(SH SR) - (AH* * SR)] Or

Formulae Direct Material Variances Direct Material Total Variance [Standard Cost - Actual Cost] (The difference between the Standard Direct Material Cost of the actual production volume and the Actual Cost of Direct Material) [(SQ * SP) - (AQ AP)] Direct Material Price Variance (Standard Cost of Actual Quantity - Actual Cost] Direct Material Usage Variance Standard Cost of Standard Quantity for Actual Production - Standard Cost of Actual Quantity] (The difference between the Standard Quantity specified for actual production and the Actual Quantity used, at Standard Purchase Price) [(SQ-AQ) * SP] (The difference between the Standard Price and Actual Price for the Actual Quantity) [(SP-AP) * AQ] Or Or [(SP AQ– (AP AQ)] [(SQ SP) - (AQ * SP)]

Variable Overhead Cost Variance = (Standard Rate * Standard Hours) -* (Actual Rate * Actual Hours) Standard Hours Standard Rate for actual output Actual Overhead 374400 3016800 (46800*8) -770400 Unfavorable (Note - Standard Hours are calculated on Actual output) Variable Cost Varainces Variable Overhead Efficency Varaiance = (Standard Rate) * (Standard Hours - Actual Hours) Standard Rate Standard Hours 374400 24000 Favorable Actual Hour 3 70400 Actual Hours Actual Hours 370400 6 -794400 Unfavorable Actual Overhead 3016800 Variable Overhead Expenditure Variance = (Standard Rate Per Hour * Actual Hours) - Actual Overhead Absorbed Fixed Actual Fixed Overhead 44,92,800 31,96,600 12,96,200 Favorable Fixed Cost Fixed Overhead Cost Varaince = Absorbed Fixed Overhead - Actual Fixed Overhead

Actual Hours 370400 Actual Rate 11.5 14 Standard Hours Standard Rate 374400 |(46800*8) Labour Cost Variance = (Standard Hours * Standard Rate) - (Actual Hours * Actual Rate) 9,82,000 Favorable (Note - Standard Hours are calculated on Actual output) Labour Cost Variances Standard Rate Standard Hours Actual Hours 374400 370400 56000 Favorable 14 Labour Efficiency Variance = (Standard Rate) * (Standard Hours -* Actual hours) Standard Rate Actual Rate Actual Hours 370400 14 11.5 Direct Labour Rate Variance = (Standard Rate - Actual Rate) * Actual Hours 926000 Favorable

Actual Qty Actual Price 1385000 6.7| 5.1 Material Cost Variance = (Standard Qty * Standard Price) - (Actual Qty * Actual Price) Standard Qty Standard Price 1248000 (41600*30) -29,14,700.00 Unfavorable Material Variance Direct Material Price Varince = (Standard Prices * Actual Quanity) - (Actual prices * Actual Standard Price Actual Qty Actual Price Quantity) 5.1 1385000 -22,16,000.00 Unfavorable Actual Qty 1385000 6.7 Material Efficiency Ratio = (Standard Price ) * (Standard Qty - Actual Quantity) Standard Price Standard Quantity Actual Quantity 5.10 1248000 1385000 (41600*30) -6,98,700.00 Unfavorable

Given Information in Question Standard Cost Information Direct Material Direct labour Vraible Manufacturing Overhead Fixed Manufacturing Overhead at 80% capacity Fixed Manufacturing Overhead at 90% capacity Cost per UOM Total 30 lbs L 5 .1 8 Hours 14 8 Hours 6 39,93,600 44,92,800 (3993600/80%)*90% 153 112 48 Actual Information Direct Material Direct labour Vraible Manufacturing Overhead Actaul Fixed Overhead UOM 1385000 lbs 370400 Hours Cost per UOM Total 6.7 9279500 11.5 4259600 3016800 31,96,600 Actual Quanity Standard Quantity 46800 41600 (Reason - As planned operaing capacity was at 80%)
all