Question

Use the information above to compute direct labor and direct materials variances. Variable product costs are broken down into DM, DL, and VMOH.

Actual Spending Variance U or F lexible Activity Variance U or F Budget Investigate? 11,000 Units 10,500 10,500 10,500 430,500 420,000 20,000) U 440,000 Sales 3% No ariable Expenses 339,297 34,125 373422 57,078 336,000 16,000) 31,500 1500) F 367,500 17500) F 1% No 8% Yes 2% No 9% Yes Variable COGS 352,000 $33,000 $ 385,000 $ 55,000 3,297 U 2,625 U 5,922 Variable Selling Total Variable Contribution Margin Fixed Expenses 4578 $52,500 (2,500) 29,400 12,200 41,600 15,478 (600) 200 U 400) $ 30,000 $ 12,000 $ 42,000 13,000 2% No 2% No 1% No 47% Yes Fixed COGS Fixed SG&A None None None 12000 $ 2000 Total Fixed $4978 10,500 2,500) U $ Net Operating Income Price/Rate $5 per pound $14 per hour Quantity 2 pounds 1.5 Hours 0.5 machine hours $2 per machine hour $1 Standard Cost $10 $21 Direct Materials Direct Labor Variable manufacturing overhead $32 Total Standard Variable Costs Additional Information: Actual quantity of materials used and purchased is 23,100 pounds. Actual amount spent on direct materials is $117,117 Average rate paid for direct labor for the month was $14.40 per hour The only variance in variable manufacturing overhead was due to activity level. Direct Material Variances: Price variance Quantity variance Direct labor variances Labor rate Labor efficiency

Answer 1

Direct Material Variances:

Direct Material Price Variance = Standard Price - Actual Price * Actual Quantity

= $5 per pound - ($117,117/23,100 pounds) * 23,100 Pounds

= ($5 per pound - $5.07 per pound) * 23,100 Pounds

= -$0.07*23,100 pounds

= -$1,617 Unfavorable

Direct Material Quantity Variance = (Standard Quantity - Actual Quantity) * Standard Price

= (11,000 units * 2 pounds per unit) - 23,100 pounds] * $5 per pound

= (22,000 pounds - 23,100 pounds) * $5 per pound

= -1,100 pounds * $5 per pound

= -$5,500 Unfavorable

Direct Labor Variances:

Direct Labor Rate Variance = (Standard Rate - Actual Rate) * Actual Hours

= ($14 per hour - $14.40 per hour) * (10,500 units * 1.5 hours per unit)

= -$0.40 per hour * 15,750 hours

= -$6,300 Unfavorable

Direct Labor Efficiency Variance = (Standard Hours - Actual Hours) * Standard Rate

= [(11,000 units * 1.5 hours per unit) - 15,750 hours] * $14 per hour

= (16,500 hours - 15,750 hours) * $14 per hour

= 750 hours * $14 per hour

= $10,500 Favorable

Variable Manufacturing Variance:

Variable Manufacturing Overhead Spending Variance = Variable overheads at Flexible Budget - Actual Variable Manufacturing Overheads

= $367,500 - $373,422

= -$5,922 Unfavorable

Variable Manufacturing Overhead Efficiency Variance = Budgeted Variable Manufacturing Overheads - Variable overheads at Flexible Budget

= $385,000 - $367,500

= $17,500 Favorable