Question

Rip Tide Company manufactures surfboards. Its standard cost information follows:

	Standard Quantity		Standard Price (Rate)			Standard Unit Cost
Direct materials (fiberglass)	15	sq. ft.	$	5	per sq. ft.	$	75.00
Direct labor	10	hrs.	$	15	per hr.		150.00
Variable manufacturing overhead (based on direct labor hours)	10	hrs.	$	6	per hr.		60.00
Fixed manufacturing overhead ($24,000 ÷ 300 units)							80.00

Rip Tide has the following actual results for the month of June:

Number of units produced and sold		316
Number of square feet of fiberglass used		4,960
Cost of fiberglass used	$	28,272
Number of labor hours worked		3,100
Direct labor cost	$	48,050
Variable overhead cost	$	15,190
Fixed overhead cost	$	24,800

Required:
1. Calculate the direct materials price, quantity, and total spending variances for Rip Tide.

2. Calculate the direct labor rate, efficiency, and total spending variances for Rip Tide.

3. Calculate the variable overhead rate, efficiency, and total spending variances for Rip Tide.

4. Calculate the fixed overhead spending (budget) and volume variances for Rip Tide.

Answer 1

1

Direct material price variance = (Actual Quantity X Standard price) - (Actual Quantity X Actual price)
=> (4960 X $5) - $28272
=> (24800 - 28272) = 3472 Unfavorable

Direct material quantity variance = (Standard price X Standard quantity) - (Standard price X Actual quantity)
=> ($5 X 4740) - ($5 X 4960)
=> (23700 - 24800) = 1100 Unfavorable
[Standard quantity = (Number of units produced X standard quantity) = (316 X 15 sq ft) = 4740 sq ft]

Direct material spending variance = (Direct material price variance + Direct material quantity variance)
=> (3472 Unfavorable + 1100 Unfavorable) = 4572 Unfavorable

2

Direct Labor rate variance = (Standard rate X Actual hours) - (Actual rate X Actual hours)
=> ($15 X 3100) - $48050
=> (46500 - 48050) = 1550 Unfavorable

Direct Labor efficiency variance = (Standard rate X Standard hours) - (Standard rate - Actual hours)
=> ($15 X 3160) - ($15 - 3100)
=> (47400 - 46500) = 900 Favorable
[Standard hours = (Number of units produced X standard hours) = (316 X 10 hours) = 3160 hours]

Direct Labor spending variance = (Direct labor rate variance + Direct labor efficiency variance)
=> (1550 Unfavorable + 900 Favorable) = 650 Unfavorable

3

Variable overhead rate variance = (Standard rate X Actual hours) - (Actual rate X Actual hours)
=> ($6 X 3100) - $15190
=> (18600 - 15190) = 3410 Favorable

Variable overhead efficiency variance = (Standard rate X Standard hours) - (Standard rate - Actual hours)
=> ($6 X 3160) - ($6 X 3100)
=> (18960 - 18600) = 360 Favorable

Variable overhead spending variance = (Variable overhead rate variance + Variable overhead efficiency variance)
=> (3410 Favorable + 180 Favorable) = 3770 Favorable

4

Fixed overhead spending variance = Actual Fixed overhead - Standard Fixed overhead
=> ($24800 - $24000) = 800 Favorable

Fixed overhead volume variance = Absorbed fixed overhead - Standard Fixed overhead
=> ($80 X 316 units) - $24000
=> (25280 - 24000) = 1280 Favorable

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