Question

Part C—August Variance Analysis

During September of the current year, the controller was asked to perform variance analyses for August. The January operating data provided the standard prices, rates, times, and quantities per case. There were 1,500 actual cases produced during August, which was 250 more cases than planned at the beginning of the month. Actual data for August were as follows:

	Actual Direct Materials
	Price per Unit	Quantity per Case
Cream base	$0.016 per oz.	102 ozs.
Natural oils	$0.32 per oz.	31 ozs.
Bottle (8-oz.)	$0.42 per bottle	12.5 bottles

	Actual Direct	Actual Direct Labor
	Labor Rate	Time per Case
Mixing	$18.20	19.50 min.
Filling	14.00	5.60 min.

Actual variable overhead	$305.00
Normal volume	1,600 cases

The prices of the materials were different than standard due to fluctuations in market prices. The standard quantity of materials used per case was an ideal standard. The Mixing Department used a higher grade labor classification during the month, thus causing the actual labor rate to exceed standard. The Filling Department used a lower grade labor classification during the month, thus causing the actual labor rate to be less than standard.

1. Determine and interpret the direct materials price and quantity variances for the three materials. Negative amount should be indicated by the minus sign. Enter a favorable variance as a negative number using a minus sign and an unfavorable variance as a positive number. Round your price values for Cream Base to three decimal places and Natural Oils & Bottles to two decimal places.

2.. Determine and interpret the direct labor rate and time variances for the two departments. Negative amount should be indicated by the minus sign. Enter a favorable variance as a negative number using a minus sign and an unfavorable variance as a positive number. Do not round hours. Round your answers to two decimal places.

Determine and interpret the factory overhead controllable variance. Negative amount should be indicated by the minus sign. Enter a favorable variance as a negative number using a minus sign and an unfavorable variance as a positive number.

Determine and interpret the factory overhead controllable variance. Negative amount should be indicated by the minus sign. Enter a favorable variance as a negative number using a minus sign and an unfavorable variance as a positive number.

Why are the standard direct labor and direct materials costs in the calculations for parts (10) and (11) based on the actual 1,500-case production volume rather than the planned 1,250 cases of production used in the budgets for parts (6) and (7)?

Answer 1

1. Direct material price variance

	Cream base	Natural oils	Bottles
Actual price	0.016	0.32	0.42
Standard price	0.02	0.3	0.5
Difference	-0.004	0.02	-0.08
Actual quantity	153000	46500	18750
Direct material price variance	612 F	930 UF	1500 F

Direct material quantity variance

	Cream base	Natural oils	Bottles
Actual quantity	153000	46500	18750
Standard quantity	150000	45000	18000
Difference	3000	1500	750
Standard price	0.02	0.3	0.5
Direct material quantity variance	60 UF	450 UF	375 UF

2. Direct labor rate variance

	Mixing department	Filling department
Actual rate	18.2	14
Standard rate	18	14.4
Difference	0.2	-0.4
Actual time (hours)	488	140
Direct labor rate variance	97.6 UF	56 F

Direct labor time variance

	Mixing department	Filling department
Actual time (hours)	488	140
Standard time (hours)	500	125
Difference	-12	15
Standard rate	18	14.4
Direct labor time variance	216 F	216 UF

3. Factory overhead controllable variance

Actual variable overhead	305
Variable overhead at standard cost	300
Factory overhead controllable variance	5 UF

4. Factory overhead volume variance

Normal volume (cases)	1600
Actual volume (cases)	1500
Difference	100
Fixed factory overhead rate	12.1625
Factory overhead volume variance	1216.25 UF