Question

Compute the cost and efficiency variances for direct materials and direct labor.

2.

For manufacturing​ overhead, compute the variable overhead cost and efficiency variances and the fixed overhead cost and volume variances.

3.

HeadsetHeadset​'s

management used better quality materials during September. Discuss the​ trade-off between the two direct material variances.

Standard Cost Information
	Quantity		Cost
Direct Materials	2	parts	$0.15	per part
Direct Labor	0.02	hours	9.00	per hour
Variable Manufacturing Overhead	0.02	hours	11.00	per hour
Fixed Manufacturing Overhead ($29,100 for static budget volume
of 97,000 units and 1,940 hours, or $15 per hour)

Actual Cost Information
Direct Materials	(212,000 parts @		$0.20	per part)	$42,400
Direct Labor	(1,640 hours @		$9.15	per hour)	15,006
Variable Manufacturing Overhead					13,000
Fixed Manufacturing Overhead					26,000

First section Requirement:

Second Setion Data Table

HeadsetHeadset

manufactures headphone cases. During September

20162016​,

the company produced and sold

107 comma 000107,000

cases and recorded the following cost​ data:

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​(Click the icon to view the cost​ data.)Read the requirements.

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Requirement 1. Compute the cost and efficiency variances for direct materials and direct labor.

Begin with the cost variances. Select the required​ formulas, compute the cost variances for direct materials and direct​ labor, and identify whether each variance is favorable​ (F) or unfavorable​ (U). ​(Abbreviations used: AC​ = actual​ cost; AQ​ = actual​ quantity; FOH​ = fixed​ overhead; SC​ = standard​cost; SQ​ = standard​ quantity.)

		Formula		Variance
Direct materials cost variance	=	(AC - SC) x AQ	=	42400	F
Direct labor cost variance	=	(AC - SC) x AQ	=	15006	U

Next compute the efficiency variances. Select the required​ formulas, compute the efficiency variances for direct materials and direct​ labor, and identify whether each variance is favorable​ (F) or unfavorable​ (U). ​(Abbreviations used: AC​ = actual​ cost; AQ​ = actual​ quantity; FOH​ = fixed​ overhead; SC​ = standard​ cost; SQ​ = standard​ quantity.)

		Formula		Variance
Direct materials efficiency variance	=	(AQ - SQ) x SC	=	385	F
Direct labor efficiency variance	=	(AQ - SQ) x SC	=	1428	U

Requirement 2. For manufacturing​ overhead, compute the variable overhead cost and efficiency variances and the fixed overhead cost and volume variances.

Now compute the variable overhead cost and efficiency variances. Select the required​ formulas, compute the variable overhead cost and efficiency​ variances, and identify whether each variance is favorable​ (F) or unfavorable​ (U). ​(Abbreviations used: AC​ = actual​ cost; AQ​ = actual​ quantity; FOH​= fixed​ overhead; SC​ = standard​ cost; SQ​ = standard​ quantity; VOH​ = variable​ overhead.)

		Formula		Variance
VOH cost variance	=	Actual VOH - (SC x AQ)	=	13000	F
VOH efficiency variance	=	(AQ - SQ) x SC	=	13000	U

Now compute the fixed overhead cost and volume variances. Select the required​ formulas, compute the fixed overhead cost and volume​ variances, and identify whether each variance is favorable​ (F) or unfavorable​ (U). ​(Abbreviations used: AC​ = actual​ cost; AQ​ = actual​ quantity; FOH​ = fixed​overhead; SC​ = standard​ cost; SQ​ = standard​ quantity.)

		Formula		Variance
FOH cost variance	=	Actual FOH - Budgeted FOH	=	9400	U
FOH volume variance	=	Budgeted FOH - Allocated FOH	=	1053	F

Requirement 3.

HeadsetHeadset​'s

management used better quality materials during September. Discuss the​ trade-off between the two direct material variances.

HeadsetHeadset​'s

management knew that using higher quality materials would result in​ a(n)

favorable direct material efficiency variance

favorable direct material cost variance

favorable direct material efficiency variance

unfavorable direct material cost variance

unfavorable direct material efficiency variance

. They hoped these materials would result in more efficient usage than​ "standard" materials. The result was an overall

favorable direct material cost variance

favorable direct material cost variance

favorable direct material flexible budget variance

unfavorable direct labor flexible budget variance

unfavorable direct material flexible budget variance

.

Answer 1

Direct materials

Actual price	0.20
Standard price	0.15
Actual quantity	212000
Standard quantity (107000*2)	214000

Direct labor

Actual price	9.15
Standard price	9.00
Actual quantity	1640
Standard quantity (107000*0.02)	2140

Requirement 1

		Formula		variance
Direct materials cost variance	=	(AC - SC) x AQ	=	10600	U
		(0.20-0.15)*212000
Direct labor cost variance	=	(AC - SC) x AQ	=	246	U
		(9.15-9.00)*1640

		Formula		variance
Direct materials efficiency variance	=	(AQ - SQ) x SC	=	300	F
		(212000-214000)*0.15
Direct labor efficiency variance	=	(AQ - SQ) x SC	=	4500	F
		(1640-2140)*9.00

Requirement 2

		Formula		variance
VOH cost variance	=	Actual VOH - (SC x AQ)	=	5040	F
		13000-(11*1640)
VOH efficiency variance	=	(AQ - SQ) x SC	=	5500	F
		(1640-2140)*11

		Formula		variance
FOH cost variance	=	Actual FOH - Budgeted FOH	=	3100 F
		26000-29100
FOH efficiency variance	=	Budgeted FOH - Allocated FOH	=	4500 U
		29100-(15*1640)

Requirement 3

Headset​'s management knew that using higher quality materials would result in a(n)

• unfavorable direct material cost variance.

They hoped these materials would result in more efficient usage than “standard” materials. The result was an overall

• unfavorable direct material flexible budget variance