Question

Soundset manufactures headphone cases. During September 2018​, the company produced and sold 107,000 cases.

Please compute the cost and efficiency variances for direct materials and direct labor.

For manufacturing​ overhead, compute the variable overhead cost and efficiency variances and the fixed overhead cost and volume variances. If Soundset’s management decided to use better quality materials during September, what would be the​ trade-off between the two direct material variances.

Thanks in advance ?

Standard Cost Information Quantity Cost 0.17 per part Direct Materials 2 parts $ Direct Labor 0.02 hours 8.00 per hour Variable Manufacturing Overhead 0.02 hours 10.00 per hour Fixed Manufacturing Overhead ($31,040 for static budget volume of 97,000 units and 1,940 hours, or $16 per hour) Actual Cost Information $ 45,980 0.22 per part) (209,000 parts @ $ Direct Materials 8.10 per hour) $ 13,284 Direct Labor (1,640 hours @ Variable Manufacturing Overhead 8,000 Fixed Manufacturing Overhead 31,000

Answer 1

1.

		Formula		Variance		Numbers
Direct materials cost variance	=	(AC - SC) x AQ	=	10450	U	[(0.22-0.17)*209000]
Direct labor cost variance	=	(AC - SC) x AQ	=	164	U	[(8.1-8)*1640]
Direct materials efficiency variance	=	(AQ - SQ) x SC	=	850	F	[(209000-(107000*2))*0.17]
Direct labor efficiency variance	=	(AQ - SQ) x SC	=	4000	F	[(1640-(107000*0.02))*8]
VOH cost variance	=	Actual VOH - (SC x AQ)	=	13400	F	[8000-((107000*0.02)*10)]
VOH efficiency variance	=	(AQ - SQ) x SC	=	3000	F	[(1640-1940)*10]
FOH cost variance	=	Actual FOH - Budgeted FOH	=	40	F	[(31000-31040)]
FOH volume variance	=	Budgeted FOH - Allocated FOH	=	3200	F	[(31040-(107000*0.02*16))]

2.

Soundset​'s management knew that using higher quality materials would result in​ a(n) unfavorable direct material cost variance.

They hoped these materials would result in more efficient usage than​ "standard" materials. The result was an overall unfavorable direct material flexible budget variance