Question

Comprehensive Variance Problem
The standard cost sheet for Chambers Company, which manufactures one product, follows:
Direct materials, 40 yards at $2.00 per yard . . . . . . . . . . . . . . . $ 80
Direct labor, 5 hours at $20 per hour. . . . . . . . . . . . . . . . . . . . . 100
Factory overhead applied at 80% of direct labor
(variable costs = $60; fixed costs = $20). . . . . . . . . . . . . . . . . . 80
Variable selling and administrative . . . . . . . . . . . . . . . . . . . . . . 64
Fixed selling and administrative . . . . . . . . . . . . . . . . . . . . . . . .   40
Total unit costs. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $364
Standards have been computed based on a master budget activity level of 28,800 direct labor-
hours per month. Actual activity for the past month was as follows:
Materials used. . . . . . . . . . . . . . 228,000 yards at $2.05 per yard
Direct labor . . . . . . . . . . . . . . . . 25,200 hours at $20.40 per hour
Total factory overhead. . . . . . . . $444,000
Production . . . . . . . . . . . . . . . . . 5,000 units
Required
Prepare variance analyses for the variable and fixed costs. Indicate which variances cannot be
computed. Materials are purchased as they are used

Answer 1

a. Material Price variance: Actual Quantity used (Standard price per yeard - Actual price)

($2-$2.05)228000= $11400 UF

b. Material Efficiency variance: Standard price (Standard Quantity allowed- Actual Quantity used)

(5000*40-228000)*$2= $56000 UF

c) Labour price variance: Actual Hours worked (Standard rate per hour-Actual rate)

25200($20-20.40)= $10080 UF

d) Labour Efficiency variance: Standard rate per hour (Standard hours allowed-Actual hours worked)

(5000*5-25200)*20= $4000 UF

e) Variable OH Efficiency variance= Standard OH rate per hour (Standard Hours allowed-Actual Hours worked)

$12(5000*5-25200)= $2400 UF

Working note- Standard variable OH rate per hour ($60 /5hours): $12 per hour

f) Fixed OH volume variance = Standard OH rate per hour (Standard Hours allowed-Budgeted Hours)

$4(25000-28800)=$15200 UF

Working Note

Budgeted Hours: 28,800 hours

Standard Hours allowed: 25,000 hours

Standard Fixed OH rate pere hour ($20/ 5 horus): $ 4 per hour