Question

Smartsets manufactures headphone cases. During September 2018, the company produces and sold 105000 cases and recorded the following cost data:

Data Table Standard Cost Information Direct Materials $ Quantity 2 parts 0.02 hours 0.02 hours Cost 0.16 per part 9.00 per hour 10.00 per hour Direct Labor Variable Manufacturing Overhead Fixed Manufacturing Overhead ($28,500 for static budget volume of 95,000 units and 1,900 hours, or $15 per hour) Actual Cost Information (209,000 parts @ (1.600 hours @ $ 0.21 per part) $ 9.10 per hour) Direct Materials Direct Labor Variable Manufacturing Overhead Fixed Manufacturing Overhead $ 43,890 14,560 10,000 25,000 Print Done

Answer 1

1.

Direct material cost variance = Actual quantity*standard price - Actual quantity-actual price

Direct material cost variance = 209,000*$0.16 - 209,000*$0.21

Direct material cost variance = $33,440 - 43,890 = $10,450 Unfavorable

Direct material efficiency variance = Standard quantity*standard price - Actual quantity*standard price

Standard quantity = 105,000*2 = 210,000

Direct material efficiency variance = 210,000*$0.16 - 209,000*$0.16

Direct material efficiency variance = $33,600 - 33,440 = $160 Favorable

Direct labor cost variance = Actual hours*standard rate - Actual hours*actual rate

Direct labor cost variance = 1,600*$9 - 1,600*$9.10

Direct labor cost variance = $14,400 - 14,560 = $160 Unfavorable

Direct labor efficiency variance = Standard hours*standard rate - Actual hours*standard rate

Standard hours = 105,000*0.02 = 2,100 hours

Direct labor efficiency variance = 2,100*$9 - 1,600*$9

Direct labor efficiency variance = $18,900 - 14,400 = $4,500 Favorable

2.

Variable overhead cost variance = Actual hours*standard rate - Actual hours*actual rate

Variable overhead cost variance = 1,600*$10 - $10,000

Variable overhead cost variance = $16,000 - 10,000 = $6,000 Favorable

Variable overhead efficiency variance = Standard hours*standard rate - Actual hours*standard rate

Variable overhead efficiency variance = 2,100*$10 - 1,600*$10

Variable overhead efficiency variance = $21,000 - 16,000 = $5,000 Favorable

Fixed overhead cost variance = Budgeted overhead - Actual overhead

Fixed overhead cost variance = $28,500 - 25,000 = $3,500 Favorable

Fixed overhead volume variance = Budgeted overhead - Applied overhead

Fixed overhead volume variance = $28,500 - 31,500 (2,100*$15)

Fixed overhead volume variance = $3,000 Favorable

3.

Smartsets's management used better quality materials which resulted in favorable direct material efficiency variances due to less wastage of material, however direct material cost variance is unfavorable due to purchase of material at higher price above standard price.