Question

Clarissa McWhirter, vice-president of Cyprus Company, was pleased to see a small variance on the income statement after the trouble the company had been having in controlling manufacturing costs. She noted that the $18,570 overall manufacturing variance reported last period was well below the 3% limit that had been set for variances. The company produces and sells a single product. The standard cost card for the product follows:

Standard Cost Card—Per Unit
Direct materials, 4 metres at $2.80 per metre	$	11.20
Direct labour, 1.8 direct labour-hours at $11.0 per direct labour-hour		19.80
Variable overhead, 1.8 direct labour-hours at $2.9 per direct labour-hour		5.22
Fixed overhead, 1.8 direct labour-hours at $5 per direct labour-hour		9.00
Standard cost per unit	$	45.22

The following additional information is available for the year just completed:

1. The company manufactured 23,000 units of product during the year.
2. A total of 91,200 metres of material was purchased during the year at a cost of $2.90 per metre. All of this material was used to manufacture the 23,000 units. There were no beginning or ending inventories for the year.
3. The company worked 42,700 direct labour-hours during the year at a cost of $10.90 per hour.
4. Overhead cost is applied to products on the basis of standard direct labour-hours. Data relating to manufacturing overhead costs follow:

  

Denominator activity level (direct labour-hours)		41,000
Budgeted fixed overhead costs (from the flexible budget)	$	205,000
Actual fixed overhead costs	$	203,450
Actual variable overhead costs	$	125,270

  

Required:

1. Compute the direct materials price and quantity variances for the year. (Indicate the effect of each variance by selecting "F" for favorable, "U" for unfavorable, and "None" for no effect (i.e., zero variance).)

2. Compute the direct labour rate and efficiency variances for the year. (Indicate the effect of each variance by selecting "F" for favorable, "U" for unfavorable, and "None" for no effect (i.e., zero variance).)

3. For manufacturing overhead, compute the following:

a. The variable overhead spending and efficiency variances for the year. (Indicate the effect of each variance by selecting "F" for favorable, "U" for unfavorable, and "None" for no effect (i.e., zero variance).)

b. The fixed overhead budget and volume variances for the year. (Indicate the effect of each variance by selecting "F" for favorable, "U" for unfavorable, and "None" for no effect (i.e., zero variance).)

4. Compute the total variance. (Indicate the effect of each variance by selecting "F" for favorable, "U" for unfavorable, and "None" for no effect (i.e., zero variance). Input all amounts as positive values.)

Answer 1

Please hit LIKE button if this helped. For any further explanation, please put your query in comment, will get back to you.
Standard Material Price		$                2.80
Standard Quantity	23,000*4	92,000
Actual Quantity		91,200
Actual Quantity used		91,200
Actual Matrial Price		$                2.90
Material Price Variance	AQ(AP-SP)
	(Actual Price	-	Standard Price)	*	Actual Quantity
	$                                      2.90	-	$                       2.80	*	91200
	$                                    9,120	Unfavorable
Material Quantity Variance	SP(AQ-SQ)
	(Actual Quantity	-	Standard Qty)	*	Standard Price
	91,200	-	92,000	*	$                       2.80
	$                              2,240.00	Favorable
Standard Hour Rate		$              11.00
Standard Hour	23,000*1.8	41,400
Actual Hours		42,700
Actual Hour Rate		$              10.90
Labor Rate Variance	AH(AR-SR)
	(Actual Rate	-	Standard Rate)	*	Actual Hours
	$                                    10.90	-	$                    11.00	*	42700
	$                                    4,270	Favorable
Labor Efficiency Variance	SR(AH-SH)
	(Actual Quantity	-	Standard Qty)	*	Standard Price
	42,700	-	41,400	*	$                     11.00
	$                                  14,300	Unfavorable
Standard Hour Rate		$                2.90
Standard Hour	23,000*1.8	41,400
Actual Hours		42,700
Actual Hour Rate	$125,270/42,700	$                2.93
Variable Overehad Rate Variance	AH(AR-SR)
	(Actual Rate	-	Standard Rate)	*	Actual Hours
	$                                      2.93	-	$                       2.90	*	42700
	$                                    1,440	Unfavorable
Variable Overhead Efficiency Variance	SR(AH-SH)
	(Actual Quantity	-	Standard Qty)	*	Standard Price
	42,700	-	41,400	*	$                       2.90
	$                                    3,770	Unfavorable
Actual Fixed Overhead		$         203,450
Budgeted Fixed Overhead		$         205,000
Fixed Overhead Budget Variance		$              1,550	Favorable
Budgeted Fixed Overhead		$         205,000
Applied Overhead -Fixed	23,000*1.8 Hours*$5	$         207,000
Fixed Overhead Production Variance		$              2,000	Unfavorable
Total Variance	Favorable	$              8,060
	Unfavorable	$           30,630
	Total Variance	$           22,570	Unfavorable