Question

Hans Enterprises is a large producer of birdseed. During June, the company produced 160 batches of crow bait. Each batch weighs 1,000 pounds. To produce this quantity of output, the company purchased and used 170,000 pounds of direct materials at a cost of $816,000. It also incurred direct labor costs of $20,000 for the 2,500 hours worked by employees on the crow bait crew. Manufacturing overhead incurred at the crow bait plant during June totaled $4,200, of which $3,100 was considered fixed. Hans’s standard cost information for each 1,000-pound batch of crow bait is as follows.

Direct materials standard price		5.00	per pound
Standard quantity allowed per batch		1,025	pounds
Direct labor standard rate		8.25	per hour
Standard hours allowed per batch		15.00	direct labor hours
Fixed overhead budgeted		3,300	per month
Normal level of production		150	batches per month
Variable overhead application rate		10.00	per batch
Fixed overhead application rate (3,300 ÷ 150 batches)		22.00	per batch
Total overhead application rate		32.00	per batch

Instructions

a. Compute the materials price and quantity variances.

Materials price variances: 34000

Materials quantity variances: (30000)

b. Compute the labor rate and efficiency variances.

Labor rate variances: 625

Efficiency variances: (825)

c. Compute the manufacturing overhead spending and volume variances.

Overhead spending variances: 700

Overhead volume variances: 220

d. What might have caused these variances? Who might be responsible? What questions would this bring up, and who might have the answers?

Answer 1

D. Causes of variances, responsibility etc.

1. Material price variance is the variance related to the change in the purchase price of materials. This is the responsibility of the purchase manager to monitor that purchases are made on the prices estimated by the management.

2. Material quantity variance is due to the excess quantity used of the materials used in the manufacturing of final product. Production department is directly responsible for such unfavorable variance in quanitiity used. This also shows that the materials are not being used efficiently.

3. Labor rate variace is due to the change in the rate of the labor per hour paid from budgeted to actual. The recruiting department is responsible for such a high rate of labor hours paid.

4. Labor efficiency variance is due to the excess hours incurred for producing the same unit of output. An unfavorable variance means that efficiency of the workers has decreased. Production department is directly responsible for such unfavorable variance. Moreover, it creates a question whether any training is required to be done for the workers to be more efficient.