Question

Based on the following information below:

1.Calculate the direct materials price and quantity variance.

2. Calculate the direct labor rate and efficiency variances.

3. Calculate the variable overhead spending and efficiency variances.

4. Calculate the fixed overhead budget variance.

5. Pick out the two variances that you computed above that you think should be further investigated. Explain why you picked these 2 variances and what might be the possible cause of the variances.

Gourmet, Inc. produces containers of frozen food Duing October the company had the following actual production and costs. Actual Containers produced in October 720 Variable Overhead $5,700 Fixed Overhead $13,000 Direct Labor cost $90,000 Which is 3,900 Direct labor hours Actual material purchased $28,000 Which is 15,000 pounds Actual Material pounds used 14,600 pounds Overhead is budgeted and applied using direct labor hours. Standard cost and annual budget information are as follows: Direct Labor Direct Material Standard cost per container 5 hours at 20 pounds at Direct $19.75 $2.00 $99 $40 labor Variable overhead $1.50 $7.50 5 hours Direct labor 5 hours at $300 Fixed Overhead Total $15 $161.25 Budgeted Monthly Fixed Overhead $12500

Answer 1

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Gourmet
Answer 1	Finished Units	Input per unit	Input required	Rate per unit	Amount
Direct Material Variance
Standard Price allowed for Actual Output at Standard Price	720.00	20.00	14,400.00	2.00	28,800.00	A
Actual Quantity of Input used at Standard Price			14,600.00	2.00	29,200.00	B 1
Quantity Variance (B 1-A)					400.00	Unfavorable
Actual Quantity of materials purchased at Standard Price			15,000.00	2.00	30,000.00	B 2
Actual cost of materials					28,000.00	C
Price Variance (C-B 2)					(2,000.00)	Favorable
Total Material Variance					(1,600.00)	Favorable
Answer 2
Direct Labor Variance
Standard Hours allowed for Actual Output at Standard Rate	720.00	5.00	3,600.00	19.75	71,100.00	D
Actual Hours of Input, at Standard Rate			3,900.00	19.75	77,025.00	E
Actual Hours of Input, at Actual Rate					80,000.00	F
Efficiency Variance (E-D)					5,925.00	Unfavorable
Price Variance (F-E)					2,975.00	Unfavorable
Total Labor Variance (F-D)					8,900.00	Unfavorable
Answer 3
Variable Overhead Variance
Standard Hours allowed for Actual Output at Standard Rate	720.00	5.00	3,600.00	1.50	5,400.00	G
Actual Hours of Input, at Standard Rate			3,900.00	1.50	5,850.00	H
Actual Hours of Input, at Actual Rate					5,700.00	I
Variable overhead efficiency variance (H-G)					450.00	Unfavorable
Variable overhead Spending variance (I-H)					(150.00)	Favorable
Total Variable overhead variance (I-G)					300.00	Unfavorable
Answer 4
Fixed overhead Budget variance					Amount $
Budget Fixed overhead					12,500.00
Actual Fixed overhead					13,000.00
Fixed overhead Budget variance					(500.00)	Unfavorable
Answer 5
Direct Labor Variance is unfavorable and the amount is high. So it should be investigated. Reasons are seen clearly. Labor rate has increased from $ 19.75 per hour to $ 20 per hour. Labor time has also increased from 3600 hours to 3900 hours.
Material Price Variance should be investigated. It is favorable by $ 1,600. Management should ensure that the quality is good as it may create usage variance.