Question

1 The following information has been provided for Abbott Company. 3 Standard Costs 4 Direct Materials 6 pounds per unit $ 5 Direct Manufacturing Labor 0.9595 hours per unit $ 6 Variable Manufacturing Overhead $ 7 8 Budgeted Fixed Manufacturing Overhe $1,000,000 $ 11.50 per pound 25.00 per hour 10.00 per direct labor hour 20.00 per direct labor hour 9 $ 10.40 per pound 10 Actual Costs Incurred 11 Direct Materials Purchased 12 Direct Materials Used 13 Direct Manufacturing Labor 14 Variable Manufacturing Overhead 15 Fixed Manufacturing Overhead Incurred 163,000 pounds 126,600 pounds 21,000 hours $ $ $ 25.50 per direct labor hour 9.63 per direct labor hour 957,550 16 17 Actual Number of Units Produced 20.000
Can anybody help me with this? I have a little direction to go on, but I'm not sure.

TIA

Answer 1

ANSWER PART 1 CALCULATION OF MATERIAL VARIANCES For first compute Direct material price variance formula to be used :- Direct material price variance = (Actual Input Qty. x Actual rate) - ( actual input ty x budgeted rate) (126600 x 10.40) - ( 126600 x 11.50 ) 139260 (F) Now compute direct material efficiency variance formula to be used: - Direct material efficiency variance = (actual input ty x budgeted rate) - (Budgeted input qt allowed for) actual output x budgeted rate (126600 x 11.50 ) - {(6 x 20000) x 11.50} 75900 (A) Now we can compute Direct material cost variance Direct material cost variance = Direct material price variance + direct material efficency variance) = 139260 (F) + 75900 (A) = 139260-75900 63360 (F)

ANSWER PART 2 CALCULATION OF LABOUR VARIANCE For compute Direct manufacturing labour price variance Direct manufacturing labour price variance = (Actual Input Qty. x Actual rate) - (actual input ty x budgeted rate) = (21000*25.5)-(21000*25) = 10500 (A) Direct manufacturing labour efficiency var. = (actual input qty x budgeted rate) - ( Budgeted input at allowed for) actual output x budgeted rate = ( 21000 x 25 )-(.9595 x 20000 ) x 25 = 45250 (A) Now we can compute Direct manufacturing cost variance Direct manufacturing cost variance = Labour price variance + labour efficiency variance = 10500(A) +45250 (A) = 10500+45250 55750 (A)

ANSWER PART 3 CALCULATION OF OVERHEAD VARIANCE Variable overhead spending variance = (Actual Input Qty. x Actual rate) - (actual input qty x budgeted rate) ( 21000 x 9.63 ) - ( 21000 x 10 ) 7770 (F) Variable overhead efficiency variance = (actual input qty x budgeted rate )-(Budgeted input at allowed for) actual output x budgeted rate (21000 x 10)-(-9595 x 20000 x 10 ) 18100 (A) Now we can compute variable overhead variance variable overhead variance = variable overhead spending variance + variable overhead effeciency vairance = 7770 (F) + 18100(A) = 7770 - 18100 = 10330 (A)

ANSWER PART 4 CALCULATION OF FIXED MANUFACTURING OVERHEAD VARIANCE Fixed manu. overhead spending variance = (Actual Input Qty. x Actual rate) - (Budgeted overheads ) = 957550 - 1000000 42450 (A) Fixed manu. overhead volume variance = flexible budget (Budgeted input qt allowed for) actual output x budgeted rate - Allocated (Budgeted input qt allowed for) actual output x budgeted rate = (50000 x 20 ) - ( 20000 x 20 ) = 1000000-400000 600000 (A) Fixed manufacturing overhead cost variance = Fixed manu. overhead spending variance + Fixed manu. overhead volume variance 42450+ 600000 642450 (A)

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