Question

Wagner Company developed the following standard costs for its product for 2011:

Direct Materials - 4 pounds at $4.50 per pound
Direct Labor - 2 hours at $10.50 per hour

Based on their flexible budget, budgeted Manufacturing Overhead costs are $80,000 of fixed costs plus variable costs of $4 per direct labor hour. Normal capacity is set at 20,000 units of product OR 40,000 DIRECT LABOR HOURS. (20,000 units x 2 labor hours per unit)

Actual costs for 2011 were as follows:

a. 19,000 units of product were actually produced
b. Direct labor costs were $362,700 for 37,200 direct labor hours actually worked.
c. Actual direct materials purchased and used during the yeear cost $361,900 for 77,000 pounds.
d. Total actual manufcaturing overhead costs were $227,000.

Compute the following yearly variances for Wagner company for 2011 and indicate whether the variance is favorable (F) or unfavorable (U)

Use the following format for all variances: (Example: 1,000 U)

1. Direct Materials Price Variance

Compute the Direct Materials Quantity Variance

Compute the total Direct Materials Variance.

Compute the Direct Labor Price Variance

Compute the Direct Labor Quantity Variance

Compute the total Direct Labor Variance

Compute the Variable Overhead Controllable Variance

Compute the Fixed Overhead Volume Variance

Compute the total Manufacturing Overhead Variance

Compute the total cost variance and indicate if favorable or unfavorable.

Answer 1

(A)

Material price variance = actual quantity x (standard price - actual price)

= 77000 x ($4.50 - $4.70)

= $15400 Unfavourable

Where,

Actual price = material cost paid/units of material purchased

= $361900/77000 = $4.7

(B)

Material quantity variance = standard price x (standard quantity - actual quantity)

= $4.50 x (76000 - 77000)

= $4500 Unfavourable

Where,

Standard quantity = actual output x standard quantity per unit of output

= 19000 x 4 = 76000 pounds

(C)

Total direct material variance = (standard quantity x standard price) - (actual quantity x actual price)

= (76000 x $4.50) - (77000 x $4.70)

= $342000 - $361900

= $19900 Unfavourable

(D)

Labor price (rate) variance = actual hours x (standard rate - actual rate)

= 37200 x ($10.50 - $9.75)

= $27900 Favourable

Where,

Actual rate = actual labor cost/actual hours

= $362700/37200 = $9.75

(E)

Labor efficiency variance = standard rate x (standard hours - actual hours)

= $10.50 x (38000 - 37200)

= $8400 Favourable

Where,

Standard hours = actual output x standard hours per unit of output

= 19000 x 2 = 38000 hours

(F)

Total direct labor variance = (standard hours x standard rate) - (actual hours x actual rate)

= (38000 x $10.50) - (37200 x $9.75)

= $399000 - $362700

= $36300 Favourable