Question

The following data were drawn from the records of Jordan Corporation.

Planned volume for year (static budget)		4,200	units
Standard direct materials cost per unit		2.20	pounds	@	$	1.30	per pound
Standard direct labor cost per unit		3.50	hours	@	$	3.70	per hour
Total expected fixed overhead costs	$	17,640
Actual volume for the year (flexible budget)		4,500	units
Actual direct materials cost per unit		1.60	pounds	@	$	1.60	per pound
Actual direct labor cost per unit		3.80	hours	@	$	3.20	per hour
Total actual fixed overhead costs	$	13,240

Required

1. Prepare a materials variance information table showing the standard price, the actual price, the standard quantity, and the actual quantity.
2. Calculate the materials price and usage variances. Indicate whether the variances are favorable (F) or unfavorable (U).
3. Prepare a labor variance information table showing the standard price, the actual price, the standard hours, and the actual hours.
4. Calculate the labor price and usage variances. Indicate whether the variances are favorable (F) or unfavorable (U).
5. Calculate the predetermined overhead rate, assuming that Jordan uses the number of units as the allocation base.
6. Calculate the fixed cost spending variance. Indicate whether the variance is favorable (F) or unfavorable (U).
7. Calculate the fixed cost volume variance. Indicate whether the variance is favorable (F) or unfavorable (U).

Answer 1

Solution:

A) PREPARE A MATERIAL VARIANCE TABLE:

STANDARD PRICE PER POUND	1.30
ACTUAL PRICE PER POUND	1.60
STANDARD QUANTITY ON FLEXIBLE BUDGET(4500*3.80)	17100
ACTUAL QUANTITY(4500*1.60)	7200

B) CALCULATE MATERIAL VARIANCE :
MATERIAL PRICE VARIANCE = ( STANDARD PRICE - ACTUAL PRICE ) ACTUAL QUANTITY
= (1.30-1.60)7200
MATERIAL PRICE VARIANCE = 2160 UNFAVOURABLE
MATERIAL USAGE VARIANCE = ( STANDARD QUANTITY - ACTUAL QUANTITY) STANDARD PRICE
= (13680-11780)1.40
MATERIAL USAGE VARIANCE = 2660 FAVOURABLE

C) PREPARE LABOUR VARIANCE TABLE :

STANDARD PRICE PER HOUR	3.70
ACTUAL PRICE PER HOUR	3.20
STANDARD HOUR FOR FLEXIBLE BUDGET(4500*3.5)	15750
ACTUAL HOUR (4500*3.80)	17100

D)
Labour price variance = (Standard rate-actual rate)actual hours = (3.70-3.20)17100
Labour price variance = 8550 F
Labour usage variance = (Standard hour-actual hour)Standard rate = (4500*3.50-17100)*3.70
Labour usage variance = 4995 U

E)
Predetermined overhead rate = Budgeted fixed overhead/Number of units
= $17640/4200
= $4.2 per unit

F) FIXED COST SPENDING VARIANCE ;
ACTUAL FIXED OVERHEAD EXPENSES - BUDGETED FIXED OVERHEAD EXPENSES
= 13240-17640
= 4400 FAVOURABLE

G) FIXED COST VOLUME VARIANCE:
ABSORBED FIXED OVERHEAD - BUDGETED FIXED OVERHEAD
= ($4.2*4500)-17640
= 1260 FAVOURABLE