Question

PA9-1 Calculating Direct Material, Direct Labor, Variable Overhead Variances [LO 9-3, 9-4, 9-5] Barley Hopp, Inc., manufactures custom-ordered commemorative beer steins. Its standard cost information follows: Standard Quantity Standard Price (Rate) Standard Unit Cost Direct materials (clay) 1.70 lbs. $ 1.80 per lb. $ 3.06 Direct labor 1.70 hrs. $ 10.00 per hr. 17.00 Variable manufacturing overhead (based on direct labor hours) 1.70 hrs. $ 1.10 per hr. 1.87 Fixed manufacturing overhead ($402,500.00 ÷ 175,000.00 units) 2.30 Barley Hopp had the following actual results last year: Number of units produced and sold 180,000 Number of pounds of clay used 328,200 Cost of clay $ 623,580 Number of labor hours worked 225,000 Direct labor cost $ 3,082,500 Variable overhead cost $ 350,000 Fixed overhead cost $ 400,000 Required: 1. Calculate the direct materials price, quantity, and total spending variances for Barley Hopp. (Do not round your intermediate calculations. Indicate the effect of each variance by selecting "F" for favorable and "U" for unfavorable.) 2. Calculate the direct labor rate, efficiency, and total spending variances for Barley Hopp. (Do not round your intermediate calculations. Indicate the effect of each variance by selecting "F" for favorable and "U" for unfavorable.) 3. Calculate the variable overhead rate, efficiency, and total spending variances for Barley Hopp. (Do not round your intermediate calculations. Indicate the effect of each variance by selecting "F" for favorable/Overapplied and "U" for unfavorable/underapplied.)

Answer 1

Solution 1:

Standard quantity of material for actual production = 180000*1.7 = 306000 lbs

Actual quantity of material = 328200 lbs

Standard price of material = $1.80 per lbs

Actual price of material = $623,580 / 328200 = $1.90 per lbs

Material price variance = (SP - AP) * AQ = ($1.80 - $1.90) * 328200 = $32,820 U

Material quantity variance = (SQ - AQ) * SR = (306000 - 328200) * $1.80 = $39,960 U

Material spending variance = Material price variance + Material quantity variance = $32,820 U + $39,960 U = $72,780 U

Solution 2:

Standard hours of direct labor = 180000 * 1.70 = 306000 hours

Standard rate of direct labor = $10 per hour

Actual hours of direct labor = 225000 hours

Actual rate of direct labor = $3,082,500 / 225000 = $13.70 per hour

Direct labor rate variance = (SR - AR) * AH = ($10 - $13.70) * 225000 = $832,500 U

Direct labor efficiency variance = (SH - AH) * SR = (306000- 225000) * $10 = $810,000 F

Direct labor spending variance = Direct labor rate variance + Direct labor efficiency variance = $832,500 U + $810,000 F = $22,500 U

Solution 3:

Standard hours of direct labor = 306000 hours

Standard rate of variable overhead = $1.10 per hour

Actual hours of direct labor = 225000 hours

Actual rate of variable overhead = $350,000 / 225000 = $1.555555 per hour

Variable overhead rate variance = (SR - AR) * AH = ($1.10 - $1.555555) * 225000 = $102,500 U

Variable overhead efficiency variance = (SH - AH) * SR = (306000 - 225000) * $1.10 = $89,100 F

Variable overhead spending variance = Variable overhead rate variance + Variable overhead efficiency variance

= $102,500 U + $89,100 F = $13,400 U