Question

Apache Corporation manufactures a single product called E-Z Printer. The standard cost per unit of product is shown below.

	Direct materials-2 pounds plastic at $5 per pound	$ 10.00
	Direct labor-2 hours at $12.00 per hour	24.00
	Variable manufacturing overhead	8.00
	Fixed manufacturing overhead	6.00
	Total standard cost per unit	$48.00

The predetermined manufacturing overhead rate is $7 per direct labor hour. It was computed from a master manufacturing overhead budget based on normal production of 20,000 direct labor hours (10,000 units) for the month. The master budget showed total variable costs of $80,000 ($4.00 per hour) and total fixed overhead costs of $60,000 ($3.00 per hour). Actual costs for October in producing 9,700 units were as follows.

	Direct materials (20,000 pounds)	$ 98,000
	Direct labor (19,600 hours)	239,120
	Variable overhead	79,100
	Fixed overhead	59,000
	Total manufacturing costs	$475,220

The purchasing department buys the quantities of raw materials that are expected to be used in production each month. Raw materials inventories, therefore, can be ignored.

Instructions

Compute the following variances for the E-Z Printer for the Apache Corporation and indicate whether the variance is favorable or unfavorable (F or U). Round computations and final answers to 0 decimal places. Show ALL computations or NO credit given.

1. Total materials variance
2. Direct materials price variance
3. Direct materials quantity variance
4. Total labor variance
5. Direct labor price variance
6. Direct labor quantity variance
7. Total overhead variance

Answer 1

Calculation of variances :-
a.
Direct materials price variance :-
Direct materials price variance	=	Actual quantity	× (	Actual Price	-	Standard Price	)
	=	20000	× (	98000/20000	-	5.00	)
	=	20000	× (	4.90	-	5.00	)
	=	20000	×	-0.10
	=	-$2,000		Favorable
Direct materials quantity variance :-
Direct materials quantity variance	=	Standard Price	× (	Actual quantity	-	Standard quantity	)
	=	5.00	× (	20000	-	9700 units * 2 pounds	)
	=	5.00	× (	20000	-	19400	)
	=	5.00	×	600	-
	=	$3,000		Unfavorable
Total Direct materials Cost variance :-
Total Direct materials Cost variance	=	Direct materials price variance	+	Direct materials quantity variance
	=	-$2,000	+	$3,000
	=	$1,000		Unfavorable
b.
Direct labor rate variance :-
Direct labor rate variance	=	Actual labor hours	× (	Actual Rate	-	Standard Rate	)
	=	19600	× (	239120/19600	-	12.00	)
	=	19600	× (	12.20	-	12.00	)
	=	19600	×	0.20
	=	$3,920		Unfavorable
Direct labor Efficiency Variance :-
Direct labor Efficiency Variance	=	Standard Rate	× (	Actual labor hours	-	Standard labor hours	)
	=	12.00	× (	19600	-	9700 units * 2 hours	)
	=	12.00	× (	19600	-	19400	)
	=	12.00	×	200
	=	$2,400		Unfavorable
Total Direct labor Cost variance :-
Total Direct labor Cost variance	=	Direct labor rate variance	+	Direct labor Efficiency Variance
	=	$3,920	+	$2,400
	=	$6,320		Unfavorable
c.
Variable Overhead rate (spending) Variance :-
Variable overhead rate Variance	=	Actual labor hours	× (	Actual Rate	-	Standard Rate	)
	=	19600	× (	79100/19600	-	4.00	)
	=	19600	× (	4.04	-	4.00	)
	=	19600	×	0.04
	=	$700		Unfavorable
Variable Overhead Efficiency Variance :-
Variable overhead Efficiency Variance	=	Standard Rate	× (	Actual labor hours	-	Standard Labor Hours for actual production	)
	=	4.00	× (	19600	-	9700 units * 2 hours	)
	=	4.00	× (	19600	-	19400	)
	=	4.00	×	200
	=	$800		Unfavorable
Fixed Overhead Cost (Spending) Variance :-
Fixed Overhead Cost (Spending) Variance	=	Actual fixed overhead	-	Budgeted fixed overhead
	=	$                                                59,000	-	$                                           60,000
	=	-$1,000		Favorable
Fixed Overhead Volume Variance :-
Fixed Overhead Volume Variance	=	Budgeted Fixed overhead rate	× (	Budgeted Labor Hours	-	Standard Labor Hours for actual production	)
	=	$3.00	× (	20,000	-	9700 units * 2 hours	)
	=	$3.00	× (	20,000	-	19400	)
	=	$3.00	×	600
	=	$1,800		Unfavorable
Total Overhead Variance :-
Variable overhead rate Variance	=	$700		Unfavorable
Variable overhead Efficiency Variance	=	$800		Unfavorable
Fixed Overhead Cost (Spending) Variance	=	-$1,000		Favorable
Fixed Overhead Volume Variance	=	$1,800		Unfavorable
Total Overhead Variance	=	$2,300		Unfavorable

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