Question

The following data were drawn from the records of Perez Corporation. Planned volume for year (static budget) Standard direct materials cost per unit Standard direct labor cost per unit Total expected fixed overhead costs Actual volume for the year (flexible budget) Actual direct materials cost per unit Actual direct labor cost per unit Total actual fixed overhead costs 3,400 units 3.50 pounds @ $1.50 per pound 2.30 hours @ $3.30 per hour $14,620 3,900 units 3.10 pounds @ $2.00 per pound 2.60 hours @ $2.70 per hour $10,220 Required a. Prepare a materials variance information table showing the standard price, the actual price, the standard quantity, and the actual quantity. b. Calculate the materials price and usage variances. Indicate whether the variances are favorable (F) or unfavorable (U). c. Prepare a labor variance information table showing the standard price, the actual price, the standard hours, and the actual hours. d. Calculate the labor price and usage variances. Indicate whether the variances are favorable (F) or unfavorable (U). e. Calculate the predetermined overhead rate, assuming that Perez uses the number of units as the allocation base. f. Calculate the fixed cost spending variance. Indicate whether the variance is favorable (F) or unfavorable (U). g. Calculate the fixed cost volume variance. Indicate whether the variance is favorable (F) or unfavorable (U).

Answer 1

A.

Material Variance Information Table
Standard Price	$       1.50	per pound
Actual Price	$       2.00	per pound
Standard Quantity for flexible budget	13650	pounds	=3900*3.5
Actual Quantity used	12090	pounds	=3900*3.1

B.
Material price Variance = (Actual Price - Standard Price) x Actual Quantity
= ($2 - $1.50) x 12090 = $6045 (U)

Material Quantity Variance = (Actual Quantity - Standard Quantity) x Standard Price
= (12090 - 13650) x $1.50 = $2340 (F)

C.

Labor Variance Information Table
Standard Price	$       3.30	per hour
Actual Price	$       2.70	per hour
Standard hours for flexible budget	8970	hours	=3900*2.3
Actual hours used	10140	hours	=3900*2.6

D.
Labor Rate Variance = (Actual price - Standard Price) x Actual hours
= ($2.70 - $3.30) x 10140 = $6084 (F)

Labor Efficiency Variance = (Actual hours - Standard hours) x Standard Price
= (10140 - 8970) x $3.30 = $3861 (U)

E. Predetermined Overhead rate = Budgeted Fixed Overhead / Planned Units
= $14620 / 3400 = $4.30 per unit

F. Fixed Cost spending Variance = Actual Fixed Cost - Standard Fixed Cost
= $10220 - $14620 = $4400 (F)

G. Fixed Cost Volume Variance = (Actual Quantity - Budgeted Quantity) x Predetermined Overhead rate
= (3900 - 3400) x $4.30 = $2150 (F)