Question

Muskie, Inc manufactures basketball uniforms for college and NBA teams. The following are the STANDARD COSTS FOR ONE UNIFORM:

           

            Direct Material                       2.25 Yards @ $12.00/YD                     $27.00

            Direct Labor                            1.5 Hours @ $18.50/HR                    $27.75

            Manufacturing Overhead

                        Variable                      $6.50/DLH x 1.5 DLHs                         $9.75

                        Fixed                           $15/DLH x 1.5 DLHs                            $22.5

Total Standard Cost Per Unit = $87.00

            Budgeted Selling Price                                                            $155.00

Planned activity level (normal capacity) is 7,500 units annually; the fixed manufacturing overhead application rate is based on that planned activity level and 1.5 direct labor hours per unit. Budgeted fixed manufacturing overhead per year = $168,750 (7,500 x 1.5) = $15/DLH

During 2017

Actual units produced and sold = 7,200 units

Actual selling price = $160.00/unit

25,000 Yards of material were purchased at $12.10/YD

Production requisitioned and used 16,050 Yard of material.

Direct labor cost of 2017 was $201,536 for 10,720 direct labor hours.

Manufacturing overhead costs incurred in 2017:

            Variable Overhead = $ 70,350

            Fixed Overhead           168,100

                        Total = $     238,450

REQUIRED:

Determine:

1. Sales price variance

2. Sales volume variance

3. Materials price variance

4. Materials quantity variance

5. Direct labor price variance

6. Direct labor quantity variance

7. Total labor budget variance

8. Variable overhead spending variance

9. Variable overhead efficiency variance

10. Fixed overhead spending variance

11. Fixed overhead production volume variance

12. Total overhead budget variance ( amount of overhead over/under applied)

Answer 1

1) Sales Price Variance = (Actual Selling Price - Budgeted Selling Price)*Actual units sold

= ($160 - $155)*7,200 units = $36,000 Favorable

2) Sales Volume Variance = (Actual Units sold - Budgeted units sold)*Budgeted Price per unit

= (7,200 units - 7,500 units)*$155 = ($46,500) Unfavorable

3) Materials Price Variance = (Std Price - Actual Price)*Actual Qty used

= ($12.00 - $12.10)*16,050 = ($1,605) Unfavorable

4) Material Quantity Variance = (Std Qty - Actual Qty)*Std Price

= [(7,200 units*2.25 yards) - 16,050]*$12.00 = $1,800 Favorable

5) Direct Labor Price Variance = (Std rate - Actual rate)*Actual Hrs

= (Std. rate*Actual hrs) - Actual Labor cost

= ($18.50*10,720 hrs) - $201,536 = ($3,216) Unfavorable

6) Direct Labor Quantity Variance = (Std hrs - Actual hrs)*Std rate

= [(7,200*1.50 hrs) - 10,720 hrs]*$18.50 = $1,480 Favorable