Question

Montana Corporation has the following standard cost sheet for its main product:

Direct Materials	2 feet at	$5 per foot	$10
Direct Labor	0.5 hours at	$10 per hour	$5
Variable Overhead	0.5 hours at	$2 per hour	$1
Fixed Overhead	0.5 hours at	$4 per hour	$2
Standard Unit Cost			$18

The fixed and variable overhead rates were based on expected activity of 2,500 hours.

During the year, the following actual restults were recorded:

Actual Results for Year:
Production		6,000 units
Direct Materials Purchases	11,750 feet purchased - 11,000 feet used	$61,100
Direct Labor	2,900 hours	$29,580
Variable Overhead		$6,000
Fixed Overhead		$10,500

1) Compute the direct materials price and usage variances, and the direct labor rate and efficiency variances. Record the journal entries using standard costing. For direct materials, do the variances for the following 2 scenarios:
a) 11,000 feet purchased and used
b) 11,750 purchased and 11,000 used (as shown above)

2) Compute the variable overhead spending and efficiency variances.

3) Compute the fixed overhead spending and volume variances.

4) Record all related journal entries for above under standard costing

Answer 1

1)

a) 11,000 feet purchased and used

Std Price = 5
Actual Price (61100/11000) = 5.5545
Std Qty ( 6000 * 2) = 12000
Actual Qty = 11000

Material Price Variance = (Std Price - Actual Price) * Actual Qty
   = (5 - 5.5545) * 11000
= 6100- unfavorable

Material Usage Variance = (Std Qty - Actual Qty) * Std Price
= (12000 - 11000) * 5
= 5000 - favorable

Journal

Material A/c (11000 * 5) Dr 55000
Material Variance A/c(11000* 0.5545)Dr 6100
   To Account Payable(11000 * 5.5545) 61100

Work in Progress (12000 * 5) Dr 60000
   To Matrieal Usage Variance(1000 * 5) 5000
To Material A/c(11000*5) 55000

b) 11,750 purchased and 11,000 used

Std Price = 5
Actual Price (61100/11750) = 5.2
Std Qty ( 6000 * 2) = 12000
Actual Qty = 11000

Material Price Variance = (Std Price - Actual Price) * Actual Qty
   = (5 - 5.2) * 11000
= 2200- unfavorable

Material Usage Variance = (Std Qty - Actual Qty) * Std Price
= (12000 - 11000) * 5
= 5000 - favorable

Journal

Material A/c (11000 * 5) Dr 55000
Material Variance A/c(11000* 0.2)Dr 2200
   To Account Payable(11000 * 5.5545) 57200

Work in Progress (12000 * 5) Dr 60000
   To Matrieal Usage Variance(1000 * 5) 5000
To Material A/c(11000*5) 55000

2)

Variable Overhead Spending variances = (Budgeted Variabel Overhead / Budgeted Houre)*Atual Qty - Actual Variable Oh
= (6000 / 2500) * 6000 - 6000
   = 8400 favorable

Variabel Overhead efficiency variance = (Budgeted Variabel Overhead / Budgeted Houre)*Atual Hrs - Actual Variable Oh
   = (6000 / 2500) * 2900 - 6000
   = 960 - favorable

3)

Fixed overhead spending variance = Budgeted fixed o/h - Actual fixed o/h
   =(4*2500) - 10500
   = 500 unfavorable

Fixed overhead volume variance =(std rate * budgeted hrs for actual output) - (std rate * budgeted hrs)
=(4* 3000) - (4* 2500)
   = 2000 favorable

4)

Variable OH dr 6000
   To Account payable 6000

Fixed Oh dr 10500
To Account payable 10500