Question

Norther Leasing Corp. has the following standards for one unit of product:

Direct material: 80 pounds X $6	$480
Direct labor: 3 hours X $16 per hour	48
Variable overhead: 1.5 hours of machine time X $50 per hour	75
Fixed overhead: 1.5 hours of machine time X $30 per hour	45

The predetermined OH rates were developed using a practical capacity of 6,000 units per year. Production is assumed to occur evenly throughout the year.

During May 2010, the company produced 525 units. Actual data for May 2010 are as follows:

Direct material purchased: 45,000 pounds X $5.92 per pound

Direct material used: 43,020 pounds (all from May’s purchases)

Total labor cost: $24,955 for 1,550 hour

Variable overhead incurred: $43,750 for 800 hours of machine time

Fixed overhead incurred: $22,800 for 800 hours of machine time

Required: Calculate the following:

a) Material cost variance

b) Material price variance based on purchases

c) Material quantity variance

d) Labor cost variance

e) Labor rate variance

f) Labor efficiency variance

g) Variable overhead Cost

h) Variable overhead expenditure variance

i) Variable efficiency variances

j) Fixed overhead cost

k) Fixed overhead expenditure

l) Fixed volume variances

Answer 1

Solution:

a)	Material Cost Variance
	Direct material price variance (Refer part b)	$3,600	Favorable
	Direct Material Quantity Variance (Refer part c)	$6,120	Unfavorable
	Material Cost Variance	$2,520	Unfavorable
b)	Direct Material Price Variance
	Actual Price	$5.92	per pound
	Standard Price	$6.00	per pound
	Variance or Difference in Price	$0.08	per pound
	x Actual Quantity PURCHASED	45,000	Pounds
	Direct Material Price Variance	$3,600	Favorable
c)	Direct Material Quantity/Efficiency Variance
	Standard Quantity Allowed for actual production:
	Actual Production/Activity	525	Units
	x Allowed Standard Quantity Per Unit	80	Pounds
	Total Standard Quantity Allowed for actual production (SQAP)	42,000	Pounds
	Actual Quantity USED (AQU) (Total Purchase 25,000 - Ending Inventory 5,000)	43,020	Pounds
	Variance or Difference in Quantity	1,020	Pounds
	x Standard Price (SP)	$6.00	Per Pound
	Material Quantity/Efficiency Variance	$6,120.00	Unfavorable
d)	Labor Cost Variance
	Direct Labor Rate Variance (Refer e)	$155	Unfavorable
	Direct Labor Efficiency Variance (Refer f)	$400	Favorable
	Labor Cost Variance	$245	Favorable
e)	Labor Rate Variance
	Actual Hourly Rate ($24,955 / 1550 Hrs)	$16.10	Per Hour
	Standard Hourly Rate	$16.00	Per Hour
	Variance or Difference in Rate	$0.10	Per Hour
	x Actual Labor Hours worked	1550	Hours
	Labor Rate Variance	$155	Unfavorable
f)	Labor Quantity / Efficiency Variance
	Standard Hours Allowed for actual production:
	Actual Production	525	Units
	x Allowed Standard Hours Per Unit	3	hours
	Total Standard Hours Allowed for actual production (SHAP)	1,575	hours
	Actual Labor Hours Worked (AH)	1,550	hours
	Variance or Difference in Hours	25	hours
	x Standard Hourly Rate (SHR)	$16.00	per hour
	Labor Efficiency Variance	$400	Favorable

Hope the above calculations, working and explanations are clear to you and help you in understanding the concept of question.... please rate my answer...in case any doubt, post a comment and I will try to resolve the doubt ASAP…thank you

Pls ask separate question for remaining parts