Question

Q3. (25 marks) The following is the standard cost card for Xerox Company's only product: Direct materials, 4 metres at $4.00 Direct labour, 5 hours at S10.00 Variable overhead, 1.5 hours at $3.00 Fixed overhead, 1.5 hours at $7.00 Standard cost per unit $16.00 $15.00 $4.50 $10.50 $46.00 The company manufactured and sold 18,000 units of product during the year. A total of 70,200 metres of material was purchased during the year at cost of $4.20 per metre. All of this material was used to manufacture the 18,000 units. The company records showed no beginning or ending inventories for the year. The company worked 29,250 direct labour hours during the year at a cost of $9.75 per hour. Overhead cost is applied to products on the basis of direct labour hours. The denominator activity level (direct labour hours) was 22,500 hours. Budgeted fixed overhead costs as shown on the flexible budget were $157,500, while actual fixed overhead costs were $156,000. Actual variable overhead costs were $90,000. Required: a) Compute the direct materials price and quantity variances for the year. b) Compute the direct labour rate and efficiency variances for the year. c) Compute the variable overhead spending and efficiency variances for the year

Answer 1

Solution

Material Price Variance	$         14,040.00	Unfavourable-U
Material quantity variance	$           7,200.00	Favourable-F

.

Labor rate variance	$           7,312.50	Favourable-F
Labor Efficiency variance	$      607,500.00	Favourable-F

.

Variable Overhead Rate Variance	$         22,500.00	Unfavourable-U
Variable Overhead Efficiency Variance	$         13,500.00	Favourable-F

Working

Actual DATA for	18000	Units
	Quantity (AQ)	Rate (AR)	Actual Cost
Direct Material	70200	$            4.20	$       294,840.00
Direct labor	29250	$            9.75	$       285,187.50
Variable Overhead	22500	$            4.00	$          90,000.00

.

Standard DATA for	18000	Units
	Quantity (SQ)	Rate (SR)	Standard Cost
	[A]	[B]	[A x B]
Direct Material	( 4 meters x 18000 Units)=72000 meters	$                   4.00	$          288,000.00
Direct labor	( 5 Hour x 18000 Units)=90000 Hour	$                10.00	$          900,000.00
Variable Overhead	( 1.5 Hour x 18000 Units)=27000 Hour	$                   3.00	$            81,000.00

.

Material Price Variance
(	Standard Rate	-	Actual Rate	)	x	Actual Quantity
(	$                    4.00	-	$                        4.20	)	x	70200
	-14040
	Variance		$             14,040.00			Unfavourable-U
Material Quantity Variance
(	Standard Quantity	-	Actual Quantity	)	x	Standard Rate
(	72000	-	70200	)	x	$              4.00
	7200
	Variance		$                7,200.00			Favourable-F

.

Labor Rate Variance
(	Standard Rate	-	Actual Rate	)	x	Actual Labor Hours
(	$                  10.00	-	$                        9.75	)	x	29250
	7312.5
	Variance		$                7,312.50			Favourable-F
Labour Efficiency Variance
(	Standard Hours	-	Actual Hours	)	x	Standard Rate
(	90000	-	29250	)	x	$           10.00
	607500
	Variance		$           607,500.00			Favourable-F

.

Variable Overhead Rate Variance
(	Standard Rate	-	Actual Rate	)	x	Actual Labor Hours
(	$                    3.00	-	$                        4.00	)	x	22500
	$       (22,500.00)
	Variance		$             22,500.00			Unfavourable-U
Variable Overhead Efficiency Variance
(	Standard Hours	-	Actual Hours	)	x	Standard Rate
(	27000	-	22500	)	x	$              3.00
	$         13,500.00
	Variance		$             13,500.00			Favourable-F