Question

Milberg Co. uses absorption costing and standard costing to improve cost control.

In 2020, the total budgeted overhead rate was $1.55 per direct labour hour. When preparing the budget, Milberg expected a monthly activity level of 10,000 direct labour hours. The monthly variable overhead cost budgeted for this level of activity was $9,500.

The following data on actual results are provided for the month of November 2020.

Materials purchased	20,000	units
Direct labour costs incurred	$36,000
Total of direct labour rate and efficiency variances	500	F
Actual wage rate ($0.20 less than standard)	4.80
Underapplied variable overhead costs	1,065	U
Total underapplied fixed and variable overhead costs	2,256	U
Materials price variance	200	F
Materials efficiency variance	610	F
Price of purchased materials	0.60	per unit
Materials used	15,000	units

Instructions

Identify and calculate as many different variances as you can for 2020.

Please explain it well

Answer 1

Answer

1)	Material Price Variance
	[Standard Price- Actual Price] X Actual Quantity = 200 F
	[Standard Price- 0.6] X 20,000 units = 200 F
	Standard Price= 0.61 per unit
2)	Material Effeciency Variance
	[ Standard units - Actual Units] X Standard Price = 610 F
	[Standard units- 15,000 units] X 0.61 per unit = 610 F
	Standrad Units= 16,000 units
3)	Material Cost Variance
	= Material Price Variance + Material Effeciency Variance
	= 200 F + 610 F
	= 810 F
4)	Labour Cost Variance
	Labour Rate Variance + Labour Effeciency Variance = 500 F
	Standard Labour Rate = Atual Wage Rate + $0.2
	= $4.8 + $0.2
	=$5
	Actual Labour Hour = $36,000/4.8 = $7,500
	Budgeted monthly Direct Labour Hours = 10,000
	Therefore, Standard Total Labour Cost are computed as under
	Labour Cost Variance = 500 F
	[Standard Total Labour Cost - Actaul Total Labour Cost] = 500 F
	[Standard Total Labour Cost - $36,000)= 500 F
	Standard Total Labour Cost = $36,500
	Standard Hour = $36,500/5 = 7,300
5)	Labour Price Variance
	[Standard Rate - Actual Rate] X Actual Hours
	[$5 - $4.8] X 7500
	= $1,500 F
6)	Labour Effeciency Variance
	[Standard Hour - Actaul Hour] X Standard Rate
	=[ 7300 - 7500] X 5
	= $1,000 U