Question

The following information is for the standard and actual costs for the Happy Corporation: Enter favorable variances as negative numbers. Standard Costs: Budgeted units of production - 16,000 [80% (or normal) capacity] Standard labor hours per unit - 4 Standard labor rate - $26 per hour Standard material per unit - 8 lbs. Standard material cost - $12 per pound Standard variable overhead rate - $15 per labor hour Budgeted fixed overhead - $640,000 Fixed overhead rate is based on budgeted labor hours at 80% (or normal) capacity. Actual Cost: Actual production - 16,500 units Actual material purchased and used - 130,000 pounds Actual total material cost - $1,600,000 Actual labor - 65,000 hours Actual total labor costs - $1,700,000 Actual variable overhead - $1,000,000 Actual fixed overhead - $640,000

Answer 1

1. Determine the Quantity Variance

Materials quantity variance MQV = Standard Price*(Standard Quantity-Actual Quantity)

ie MQV = 12*(16000*8-130000) = -$24,000 = 24000U

2. Determine the total direct materials cost variance

Materials price variance MPV = Actual Quantity Used*(Standard Price - Actual Price)

ie MPV = 130000*12 - 1600000 = -$40,000 = 40000U

3. Determine the Time Variance

Labor efficiency variance LEV = Standard Lab Rate*(Standard Hours-Actual Hours)

ie LEV =26*(16000*4 - 65000) = -$26,000 = 26000U

4. Determine the Total Labor Cost Variance

Labor rate variance LRV = Actual Hours*(Standard Rate-Actual Rate)

ie LRV= AH*SR - AH*AR = 65000*26 - 1700000 = -$10,000 = 10000U

5. Determine the total Factory Overhead Cost Variance

OHRV = overhead rate variance = AOH-SOH = 1700000 - 65000*26

=          Actual Hours x ( Actual rate - Standard rate)

=          $10,000