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Xavier Company produces a single product. Variable manufacturing overhead is applied to products on the basis...

Xavier Company produces a single product. Variable manufacturing overhead is applied to products on the basis of direct labor-hours. The standard costs for one unit of product are as follows: Direct material: 6 ounces at $0.50 per ounce . . . . . . . . . . . . . . . . . . $3 Direct labor: 1.8 hours at $10 per hour . . . . . . . . . . . . . . . . . . . . . . . 18 Variable manufacturing overhead: 1.8 hours at $5 per hour . . . . . . . 9 Total standard variable cost per unit . . . . . . . . . . . . . . . . . . . . . . . . . $30 During June, 2,000 units were produced. The costs associated with June’s operations were as follows: Material purchased: 18,000 ounces at $0.60 per ounce . . . . . . . $10,800 Material used in production: 14,000 ounces . . . . . . . . . . . . . . . . . — Direct labor: 4,000 hours at $9.75 per hour . . . . . . . . . . . . . . . . . $39,000 Variable manufacturing overhead costs incurred . . . . . . . . . . . . . $20,800 Required: Compute the direct materials, direct labor, and variable manufacturing overhead variances.

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Solution

Material Price Variance $           1,800.00 Unfavourable-U
Material quantity variance $           1,000.00 Unfavourable-U
Total Material Variance $           4,800.00 Unfavourable-U
Labor rate variance   $           1,000.00 Favourable-F
Labor Efficiency variance $           4,000.00 Unfavourable-U
Total Labor variance $           3,000.00 Unfavourable-U
Variable Overhead Rate Variance $               800.00 Unfavourable-U
Variable Overhead Efficiency Variance $           2,000.00 Unfavourable-U
Variable Overhead Spending Variance $           2,800.00 Unfavourable-U

Working

2000 Items
Quantity (AQ) Rate (AR) Actual Cost
Direct Material 18000 $            0.60 $ 10,800
Direct labor 4000 $            9.75 $ 39,000
Variable Overhead 4000 $            5.20 $ 20,800
Standard DATA for 2000 Items
Quantity (SQ) Rate (SR) Standard Cost
[A] [B] [A x B]
Direct Material ( 6 ounces x 2000 Items)=12000 ounces $              0.50 $               6,000.00
Direct labor ( 1.8 hours x 2000 Items)=3600 hours $           10.00 $            36,000.00
Variable Overhead ( 1.8 hours x 2000 Items)=3600 hours $              5.00 $            18,000.00
Material Price Variance
( Standard Rate - Actual Rate ) x Actual Quantity
( $                    0.50 - $                     0.60 ) x 18000
-1800
Variance $             1,800.00 Unfavourable-U
Material Quantity Variance
( Standard Quantity - Actual Quantity ) x Standard Rate
( 12000 - 14000 ) x $              0.50
-1000
Variance $             1,000.00 Unfavourable-U
Material Spending Variance
( Standard Cost - Actual Cost )
( $            6,000.00 - $           10,800.00 )
-4800
Variance $             4,800.00 Unfavourable-U
Labor Rate Variance
( Standard Rate - Actual Rate ) x Actual Labor Hours
( $                  10.00 - $                     9.75 ) x 4000
1000
Variance $             1,000.00 Favourable-F
Labour Efficiency Variance
( Standard Hours - Actual Hours ) x Standard Rate
( 3600 - 4000 ) x $           10.00
-4000
Variance $             4,000.00 Unfavourable-U
Labor Spending Variance
( Standard Cost - Actual Cost )
( $         36,000.00 - $           39,000.00 )
-3000
Variance $             3,000.00 Unfavourable-U
Variable Overhead Rate Variance
( Standard Rate - Actual Rate ) x Actual Labor Hours
( $                    5.00 - $                     5.20 ) x 4000
$             (800.00)
Variance $                 800.00 Unfavourable-U
Variable Overhead Efficiency Variance
( Standard Hours - Actual Hours ) x Standard Rate
( 3600 - 4000 ) x $              5.00
$         (2,000.00)
Variance $             2,000.00 Unfavourable-U
Variable Overhead Spending Variance
( Standard Cost - Actual Cost )
( $         18,000.00 - $           20,800.00 )
-2800
Variance $             2,800.00 Unfavourable-U
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