Question

The SCC Division of the Big-Drug Company uses standard costing to help control their production costs.  The division’s main product is a pharmaceutical product that comes in a multi-dose package.  The standard variable costs per package are given below:

Direct materials (chemical ingredients 1.2 ounces @$1.00 per ounce)

Direct materials (packaging 1 package piece @$0.40 per package piece)

Direct labor (.20 hour @ $17.00 per hour)

Variable overhead ($2.00 per direct labor hour)

Fixed overhead ($9.00 per direct labor hour)

      During the most recent month, 88,000 finished packages of the product were produced. Other salient information follows:

Actual variable overhead	$35,750.00
Actual fixed overhead	$161,400.00
Actual direct labor hours	17,400
Actual direct labor hourly rate	$17.05
DM chemicals purchase price	$0.980
DM chemicals purchase quantity	115,000
DM packages purchase price	$0.41
DM packages purchase quantity	94,000
DM chemicals used	110,000
DM packages used	92,000
Fixed Overhead Budget	$162,000

For questions 27-30 compute each of the following variances indicating both the dollar amount and whether the amount is favorable (F) or unfavorable (U). If a variance is zero please input zero for the dollar amount and leave the F and U columns blank. DM= direct materials, DL= direct labor.

		Dollar Amount	F	U
27.	The DL rate variance
28.	The DL efficiency variance
29.	The variable overhead spending variance
30.	The fixed overhead spending variance

31.  If the fixed overhead is applied based on a rate of $9.00 per direct labor hour, then what is the budgeted fixed overhead base (also called the denominator) quantified in terms of finished packages?

Answer 1

	Particulars	Variance amount	Type	Reason
27	DL rate variance = Actual hrs*(Actual rate -Standard rate)
	DL rate variance = 17400*(17.05 - 17)	$                                   870.00	U	It is unfavourable as actual rate paid per hour > standard rate per hour
28	DL effeciency variance = Standard rate*(Standard hrs - Actual hrs)
	DL effeciency variance = 17*((88000*0.20)-17400))	$                                3,400.00	F	It is favourable variance as actual labour hours < standard labour hours
	DL effeciency variance = 17*(17600-17400)
29	Variable OH spending variance = Actual hrs worked*Actual OH rate - Actual hrs worked*standard OH rate
	Variable OH spending variance = (35750 - 17400*2)	$                                   950.00	U	Its is unfavoourable as actual OH > OH that should have been spent at standard rate
30	The fixed overhead spending variance = Budgeted Fixed OH - Actual Fixed OH
	The fixed overhead spending variance = 162000 - 161400	$                                   600.00	U	It is unfavourable as Actual Fixed OH < Budgeted Fixed OH
31	Calcuulation of Budgeted Fix OH
	Fixed overhead	($9.00 per direct labor hour)
	Standard hrs required for 1 unit	0.20 hrs
	FIXED OH for 1 unit	$1.80		($9*0.20hrs)
	Units produced	88000 packages
	Budgeted Fixed OH	$158,400		($1.80*88000)