Question

Variances

	Original Budget	Actual	Flexible Budget
Units Produced (in units)	10,000	12,000	?
Materials used (kg)	400	700	?
Material cost ($)	8,000	See purchases	?
Direct Labour (hours)	35,000	46,102	?
Direct Labour ($)	385,000	507,080	?
Variable Overhead ($)	350,000	419,161	?
Fixed Overhead ($)	160,000	161,000	?

           

Other Information

Overhead is Allocated on Direct Labour Hours

During the year, 800 kg of materials were purchased for $5,000

Beginning Inventory: none

Ending Inventory:     100kg

Required:

Calculate the flexible budget amounts for all items.

Calculate the following variances

1. Material Rate
2. Material Efficiency
3. Labour Price
4. Labour Efficiency
5. Variable Overhaed Rate
6. Variable Overhead Efficiency
7. Fixed Overhead Rate
8. Fixed Overhead Production Volume
9. Assume that the Material, Labour and Variable Overhead variances are inter-related. What is the most likely single cause of these variances. Briefly explain your answer.

Answer 1

	Cost card
	Particulars	Standard cost for actual production	Particulars	Actual cost
	Quantity & hour	Rate($/lb & $/hr)	Amount	Quantity & hour	Rate($/lb & $/hr)	Amount
	Direct Material	480.00	20.00	$                  9,600	Material purchased	800.00	6.25	$                     5,000.00
			($8000/400kg)		Material used	700.00	6.25	$                     4,375.00
					Closing material	100.00		$                         625.00
	Direct labour	42000.00	11.00	$            4,62,000	Direct labour	46,102.00	16.50	$                5,07,080.00
			($385000/35000)
	Variable overhead	42000.00	10.00	$            4,20,000	Variable overhead	35,300.00	11.87	$                4,19,161.00
			($350000/35000)
	Fixed overhead			$            1,60,000	Fixed overhead			$                1,61,000.00
	Total Standard manufacturing cost	$         10,51,600
		Budgeted unit		10,000
		Actual unit		12,000
	Computation of variances:
1	Material Price variance = (Standard rate - Actual rate) * Actual quantity purchase
	Material Price variance = ($20 - $6.25) X 800 pound   = $11000 (Favourable)
2	Material efficiency variance = (Standard Quantity - Actual Quantity used) * Standard rate
	Material efficiency variance = (480 pound   - 700 pound ) X $20 = $-4400 (Unfavourable)
3	Labor Rate variance = (Standard rate - Actual rate) * Actual hours
	Labor Rate variance = ($11/hr - $16.5/hr) X 46102 hr = $-253561 (Unfavourable)
4	Labor efficiency variance = (Standard Hours - Actual Hours) * Standard rate
	Labor efficiency variance = (42000 hr - 46102 hr) X $11/hr = $-45122 (Unfavourable)
5	Variable Overhead rate variance = (Standard rate - Actual rate) * Actual hour used
	Variable Overhead rate variance = ($12/hr - $12.04/hr) X 35300 hr = $-1400 (Unfavourable)
6	Variable overhead efficiency variance = (Standard hour - Actual hour) * Standard rate
	Variable overhead efficiency variance = (42000 hr - 35300 hr) X $10/hr = $67000 (Favourable)
7	Fixed Overhead Budget variance = (Actual Fixed overhead - Budgeted Fixed overhead
	Fixed Overhead Budget variance = ($161000 - $160000) = $-1000 (Unfavourable)
8	Fixed overhead Volume variance = (Actual output - Budgeted output) * Budgeted Overhead rate
	Fixed overhead Volume variance = (12000 unit - 10000 unit ) X ($160000 / 10000 unit ) = $32000 (Favourable)	ekkarill92 Next > < Previous Related Solutions Original Budget Actual Flexible Budget Units Produced (in units) 10,000 12,000 ? Materials used (kg) 400... Original Budget Actual Flexible Budget Units Produced (in units) 10,000 12,000 ? Materials used (kg) 400 700 ? Material cost ($) 8,000 See purchases ? Direct Labour (hours) 35,000 46,102 ? Direct Labour ($) 385,000 507,080 ? Variable Overhead ($) 350,000 419,161 ? Fixed Overhead ($) 160,000 161,000 ?             Other Information Overhead is Allocated on Direct Labour Hours During the year, 800 kg of materials were purchased for $5,000 Beginning Inventory: none Ending Inventory:     100kg Required: Calculate the flexible... Original Budget Actual Flexible Budget Units Produced (in units) 10,000 12,000 ? Materials used (kg) 400... Original Budget Actual Flexible Budget Units Produced (in units) 10,000 12,000 ? 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