Question

Manlius Company produces a single product. Variable manufacturing overhead is applied to products on the basis of direct labor hours. The standard costs for one unit of product are as follows:

Direct material: 6 ounces at $0.50 per ounce	$3.00
Direct labor: 0.6 hours at $30.00 per hour	$18.00
Variable manufacturing overhead: 0.6 hours at $10.00 per hour	$6.00
Total standard variable cost per unit	$27.00

During January, 2,000 units were produced. The costs associated with January’s operations were as follows:

Material purchased: 18,000 ounces at $0.60 per ounce	$10,800
Material used in production: 14,000 ounces
Direct labor: 1,100 hours at $30.50 per hour	$33,550
Variable manufacturing overhead costs incurred	$12,980

Determine the direct materials variance, direct labor variance, and variable manufacturing overhead variance.

Answer 1

Material Price Variance = (Actual Price - Standard Price) x Actual Quantity purchased
= ($0.60 - 0.50) x 18000 = $1800 (U)

Material Quantity Variance = (Actual Quantity used - Standard Quantity) x Standard price
= (14000 - 6000x2) x 0.50 = $1000 (U)

Total Material Variance = Actual Quantity used x Actual Price - Standard Quantity x Standard Price
= 14000 x $0.60 - 12000 x 0.50 = $2400 (U)

Labor Rate Variance = (Actual Rate - Standard Rate) x Actual hours
= ($30.50 - 30) x 1100 = $550 (U)

Labor Efficiency Variance = (Actual hours - Standard hours) x Standard rate
= (1100 - 2000 x 0.6) x $30 = $3000 (F)

Total Labor Variance = $550-3000 = $2450 (F)

Variable Overhead Rate Variance = Actual Overhead - Standard Rate x Actual hours
= $12980 - 1100 x 10 = $1980 (U)

Variable Overhead Efficiency Variance = (Actual hours - Standard hours) x Standard rate
= (1100 - 2000 x 0.6) x $10 = $1000 (F)

Total Variable overhead variance = $1980-1000 = $980 (U)