Question

Milberg Co. uses absorption costing and standard costing to improve cost control.

In 2016, the total budgeted overhead rate was $1.55 per direct labour hour. When preparing the budget, Milberg expected a monthly activity level of 10,000 direct labour hours. The monthly variable overhead cost budgeted for this level of activity was $9,500.

The following data on actual results are provided for the month of November 2016.

Materials purchased 20,000 units $36,000 Direct labour costs incurred Total of direct labour rate and efficiency variances S 500 F $ 4.80 Actual wage rate ($0.20 less than standard) $ 1,065 U Underapplied variable overhead costs $ 2,256 U Total underapplied fixed and variable overhead costs Materials price variance 200 F Materials efficiency variance 610 F Price of purchased materials 0.60 per unit Materials used 15,000 units

calculate the following variances:

Material Price Variance

Materials Quantity Variance

Total Materials Variance

Labor Price Variance

Labor Quantity Variance

Total Labor Variance

Variable Overhead Spending Variance

Variable Overhead Efficiency Variance

Variable Overhead Total Variance

Fixed Overhead Spending Variance

Fixed Overhead Efficiency Variance

Fixed Overhead Total Variance

* please include all formulas and do not use excel

Answer 1

a )

material price variance

formula

(SP - AP ) * AQ = PRICE VARIANCE

actual price = 0.60

standard price =

actual quantity =20,000

variance = 200 favorable

mathematical solve

SP = X

( X - AP ) * AQ = VARIANCE

( X - 0.60 ) * 20,000 = 200 F

( 200 / 20,000 ) + 0.60 = X

0.01 + 0.60 = 0.70

STANDARD PRICE = 0.61

MATERIAL PRICE VARIANCE = 200 FAVORABLE

.

.

b)

MATERIAL QUANTITY VARIANCE

formula

(SQ - AQ ) * SP = variance

actual quantity = 15000

standard price = 0.61

variance = 610 favorable

standard quantity = X

( X - 15,000 ) * 061 = 610 F

( 610 / 0.61 ) + 15,000 = X

1,000 + 15000 = 16,000

Standard quantity = 16,000

variance = 610 favorable

.

.

c)

TOTAL MATERIAL VARIANCE

material price variance f + quantity variance f = total variance

610 + 200 = 810 it is the total variance

.

.

d)

labor price variance

(SR - AR ) * AH

actual rate =4.80

actual hour = 7,500 ( actual labor cost 36000 / 4.80 per hour cost )

mathematical solve

standard rate = X

( X - AR ) * AH = VARIANCE

( 500 / 7500 ) + 4.80 = X

0.66 + 4.80 = 4.86

STANDARD RATE = 4.86

variance = 500 favorable

.

.

e)

labor efficiency variance

formula

(SH - AH ) * SR = VARIANCE

AH = 7500

SH = X

STANDARD PRICE = 4.86

variance = 500 favorable

(X - AH ) * SR = VARIANCE

( x - 7500 ) * 4.86 = 500

(500 / 4.86) + 7500 = x

103 +7500 = 7603

standard hour = 70630

variance = 500 favorable ( SH > AH )

.

.

f)

total labor variance

labor rate variance + labor efficiency variance = total variance

500 + 500 = 1000

.