Question

Delta Products prepares its budgets on the basis of standard costs. A responsibility report is prepared monthly showing the differences between master budget and actual results. Variances are analyzed and reported separately. There are no materials inventories.

The following information relates to the current period:

  

Standard costs (per unit of output)
Direct materials, 7 gallons @ $4.00 per gallon	$	28
Direct labor, 5.00 hours @ $44.00 per hour		220
Factory overhead
Variable (25% of direct labor cost)		55
Total standard cost per unit	$	303

Actual costs and activities for the month follow:

Materials used		16,020	gallons at $1.98 per gallon
Output		2,060	units
Actual labor costs		5,700	hours at $41.80 per hour
Actual variable overhead	$	58,200

Required:

Prepare a cost variance analysis for the variable costs. (Do not round intermediate calculations. Indicate the effect of each variance by selecting "F" for favorable, or "U" for unfavorable. If there is no effect, do not select either option.)

	Direct materials: Price variance Efficiency variance Direct materials cost variance Direct labor: Price variance Efficiency variance Direct labor cost variance Variable overhead: Price variance Efficiency variance Variable overhead cost variance

Answer 1

• All working forms part of the answer
• Working #1

Actual DATA for		2060	units
	Quantity (AQ)	Rate (AR)	Actual Cost
Direct Material	16020	$              1.980	$           31,719.60
Direct labor	5700	$              41.80	$        238,260.00
Variable Overhead	5700	$             10.21	$           58,200.00

Standard DATA for		2060	units
	Quantity (SQ)	Rate (SR)	Standard Cost
	[A]	[B]	[A x B]
Direct Material	( 7 gallons x 2060 units)=14420 gallons	$                   4.00	$       57,680.00
Direct labor	( 5 hrs x 2060 units)=10300 hrs	$                44.00	$     453,200.00
Variable Overhead	( 5 hrs x 2060 units)=10300 hrs	$                11.00	$     113,300.00

• Working #2: All variances calculation

Material Price Variance
(	Standard Rate	-	Actual Rate	)	x	Actual Quantity
(	$                        4.00	-	$                       1.98	)	x	16020
	32360.4
	Variance		$            32,360.40			Favourable-F
Material Quantity Variance
(	Standard Quantity	-	Actual Quantity	)	x	Standard Rate
(	14420	-	16020	)	x	$                           4.00
	-6400
	Variance		$              6,400.00			Unfavourable-U
Material Spending Variance
(	Standard Cost	-	Actual Cost	)
(	$             57,680.00	-	$            31,719.60	)
	25960.4
	Variance		$            25,960.40			Favourable-F
Labor Rate Variance
(	Standard Rate	-	Actual Rate	)	x	Actual Labor Hours
(	$                     44.00	-	$                    41.80	)	x	5700
	12540
	Variance		$            12,540.00			Favourable-F
Labour Efficiency Variance
(	Standard Hours	-	Actual Hours	)	x	Standard Rate
(	10300	-	5700	)	x	$                        44.00
	202400
	Variance		$          202,400.00			Favourable-F
Labor Spending Variance
(	Standard Cost	-	Actual Cost	)
(	$           453,200.00	-	$          238,260.00	)
	214940
	Variance		$          214,940.00			Favourable-F
Variable Overhead Rate Variance
(	Standard Rate	-	Actual Rate	)	x	Actual Labor Hours
(	$                     11.00	-	$                    10.21	)	x	5700
	4500
	Variance		$              4,500.00			Favourable-F
Variable Overhead Efficiency Variance
(	Standard Hours	-	Actual Hours	)	x	Standard Rate
(	10300	-	5700	)	x	$                        11.00
	50600
	Variance		$            50,600.00			Favourable-F
Variable Overhead Spending Variance
(	Standard Cost	-	Actual Cost	)
(	$           113,300.00	-	$            58,200.00	)
	55100
	Variance		$            55,100.00			Favourable-F

• Answers

Direct materials:
Price variance	$    32,360.40	Favourable-F
Efficiency variance	$      6,400.00	Unfavourable-U
Direct materials cost variance	$    25,960.40	Favourable-F
Direct labor:
Price variance	$   12,540.00	Favourable-F
Efficiency variance	$ 202,400.00	Favourable-F
Direct labor cost variance	$ 214,940.00	Favourable-F
Variable overhead:
Price variance	$      4,500.00	Favourable-F
Efficiency variance	$    50,600.00	Favourable-F
Variable overhead cost variance	$    55,100.00	Favourable-F