Question

Clarissa McWhirter, vice-president of Cyprus Company, was pleased to see a small variance on the income statement after the trouble the company had been having in controlling manufacturing costs. She noted that the \(\$ 16,156\) overall manufacturing variance reported last period was well below the \(3 \%\) limit that had been set for variances. The company produces and sells a single product. The standard cost card for the product follows:

The following additional information is available for the year just completed:

a. The company manufactured 18,000 units of product during the year.

b. A total of 71,110 metres of material was purchased during the year at a cost of \(\$ 2.60\) per metre. All of this material was used to manufacture the 18,000 units. There were no beginning or ending inventories for the year.

C. The company worked 24,200 direct labour-hours during the year at a cost of \(\$ 8.30\) per hour.

d. Overhead cost is applied to products on the basis of standard direct labour-hours. Data relating to manufacturing overhead costs follow:

Required:

1. Compute the direct materials price and quantity variances for the year.

   2. Compute the direct labour rate and efficiency variances for the year.

   3. For manufacturing overhead, compute the following:

   a. The variable overhead spending and efficiency variances for the year.

   b. The fixed overhead budget and volume variances for the year.
   

Answer 1

Solution 1:

Direct Material Cost Variance
Actual Cost					Standard cost for actual quantity					Standard Cost
AQ *	AP =				AQ *	SP =				SQ *	SP =
71110	$2.60	$184,886.00			71110	$2.30	$163,553.00			72000	$2.30	$165,600.00
			$21,333.00	U				$2,047.00	F
			Direct Material Price Variance					Direct Material Qty variance
Direct material price variance					$21,333.00	U
Direct material quantity variance					$2,047.00	F

Solution 2:

Direct Labor Cost Variance
Actual Cost					Standard cost for actual quantity					Standard Cost
AH *	AR =				AH *	SR =				SH *	SR =
24200	$8.30	$200,860.00			24200	$8.50	$205,700.00			23400	$8.50	$198,900.00
			$4,840.00	F				$6,800.00	U
			Direct Labor rate Variance					Direct Labor Efficiency Variance
Direct Labor Rate variance					$4,840.00	F
Direct Labor Efficiency variance					$6,800.00	U

Solution 3a:

Variable Overhead Cost Variance
Actual Cost					Standard cost for actual quantity					Standard Cost
AH *	AR =				AH *	SR =				SH *	SR =
24200	$2.47	$59,870.00			24200	$2.40	$58,080.00			23400	$2.40	$56,160.00
			$1,790.00	U				$1,920.00	U
			Variable overhead rate variance					Variable overhead efficiency variance
Variable overhead rate variance					$1,790.00	U
Variable overhead efficiency variance					$1,920.00	U

Solution 3b:

Fixed Overhead Cost Variance

Actual Fixed OH Cost

Budgeted Fixed Overhead

Standard Cost (FOH Applies)

SH*

BR

$108,200.00

$110,000.00

23400

$5.00

$117,000.00

$1,800.00

F

$7,000.00

F

Fixed overhead Budget Variance

Fixed overhead volume variance

Fixed overhead Budget Variance

$1,800.00

F

Fixed overhead volume variance

$7,000.00

F

Solution 4:

Total variance = Sum of all variances = $21,333 U + $2,047 F + $4,840 F + $6,800 U + $1,790 U + $1,920 U + $1,800 F + $7,000 F = $16,156 U