Question

The fire department expected to spend $100,000 in April. Actually, it spent $108,680. The department thought it would pay each member of its team of firefighters $25 per hour. However, it paid them each $26 per hour on average. The department expected that the team of firefighters would work a total of 4,000 hours and fight 100 fires. Of course, many hours the firefighters are on duty in the station house between fires. Those hours are considered to be worked and the firefighters are paid for those hours. The actual results were 4,180 hours worked by the team of fighters and 110 fires fought by the department.

What is the Total Variance, Volume Variance, Quantity Variance and Price Variance?

Answer 1

Compute the total variance, using the equation as shown below:

Total variance = Budgeted cost – Actual cost

                      = $100,000 - $108,680

                        = ($8,680)

Hence, the total variance is $8,680 Unfavourable.

Compute the standard price per fight, using the equation as shown below:

Standard price = Standard cost/ Expected firefights

                        = $100,000/ 100 fires

                        = $1,000

Hence, the standard price is $1,000.

Compute the volume variance, using the equation as shown below:

Volume variance = (Actual quantity – Standard quantity)*Standard price

                          = (110 fires – 100 fires)*$1,000

                            = $10,000

Hence, the volume variance is $10,000 favourable.

Compute the quantity variance, using the equation as shown below:

Quantity variance = (Standard quantity – Actual quantity)*Standard price

                            = (4,000 hours – 4,180 hours)*$25

                              = ($4,500)

Hence, the quantity variance is $4,500 Unfavourable.

Compute the price variance, using the equation as shown below:

Price variance = (Standard price – Actual price)*Actual quantity

                        = ($25 - $26)*4,180 hours

                        = ($4,180)

Hence, the price variance is 4,180 Unfavourable.