Question

The following information is provided to assist you in evaluating the performance of the production operations of Studio Company:

Units produced (actual)	61,000
Master production budget
Direct materials	$126,060
Direct labor	106,960
Overhead	168,080
Standard costs per unit
Direct materials	$1.65 × 2 gallons per unit of output
Direct labor	$14 per hour × 0.2 hour per unit
Variable overhead	$12.50 per direct labor-hour
Actual costs
Direct materials purchased and used	$133,760 (83,600 gallons)
Direct labor	135,459 (10,380 hours)
Overhead	181,200 (61% is variable)

Variable overhead is applied on the basis of direct labor-hours.

Required:

Calculate all variable production cost price and efficiency variances and fixed production cost price and production volume variances. (Do not round intermediate calculations. Indicate the effect of each variance by selecting "F" for favorable, or "U" for unfavorable. If there is no effect, do not select either option.)

Answer 1

When Variances are favourable it means we have spent less than we have would have actually spent under standard cost system, therefore we have saved money hence favourable.

When Variances are unfavourable it means we have spent more than we have would have actually spent under standard cost system, therefore we have made a loss. hence unfavourable.