Question

What is the sum of all the price, efficiency and volume variances across all accounts (material, labor, variable overhead, and fixed overhead)?

Consider the following information for help with the question:

DeFleur manufactures bicycles. The bicycles are manufactured in two divisions. In the framing division, the carbon bicycle frames are manufactured. In the assembly division, the components are assembled to the frame and the bike is ready for sale. There is no market for the unassembled frames and all manufactured frames are transferred to the assembly division. For the purposes of performance evaluation, the framing division transfers the completed frames to the assembly division at the budgeted standard cost of a frame. The budgeted units of production for the framing division is 1,000, all of which will be transferred to the assembly division at the standard full absorption cost.

The budgeted costs for the framing division are as follows:

Direct Materials per unit: 10 layers of carbon-fiber at $20/layer	$200.00
Direct Labor per unit: 8 hours at $12/hour	$96.00

1.  Standard variable overhead is applied to products on the basis of direct labor hours at a rate of $4/unit produced.

Budgeted Fixed Overhead is $30,000 and the standard fixed cost per unit is based on the budgeted units of production.

Actual data for the period relating to the costs are as follows:

The actual number of units produced was	800
Actual Fixed Overhead costs were	$32,000
Actual Variable Overhead costs	$4,000

2. The framing division worked 7,500 direct labor hours during the year at a total cost of $93,750.

3.  A total of 9,000 carbon-fiber layers were purchased and used in production during the year at a total cost of $171,000

4. Total Budgeted cost for the framing department was $330,000. The total actual cost was $300,750

(Note that all the questions on variance are with respect to the framing department.)

Answer 1

Solution:

Standard qty of material per unit = 10 layer

Standard rate of material = $20 per layer

Budgeted prodcution = 1000 units

Actual production = 800 units

Standard Qty of direct material = 800*10 = 8000 layers

Actual Qty of direct material = 9000 layers

Actual cost of direct material = $171,000

Actual rate of direct material = $171,000 / 9000 =$19 per layer

Material Price Variance = (SP - AP)* AQ = (20-19)*9000 = $9000F

Material Qty variance = (SQ - AQ) * SR = (8000 - 9000)*20 = $20,000U

Material Volume Variance = (budgeted production - Standard production) * Budgeted rate per unit

= (1000 - 800) *200 = $40000F

Total material variance = Budgeted cost of direct material - Actual cost of direct material

= 200*1000 - $171,000 = $29000F

Standard hours of labor per unit = 8 hours

Standard rate of labor = $12 per hour

Budgeted prodcution = 1000 units

Actual production = 800 units

Standard Hrs of direct labor = 800*8 = 6400 hours

Actual hrs of direct labor = 7500 hours

Actual cost of direct labor = $93,750

Actual rate of direct labor = $93,750 / 7500 =$12.50 per hour

Labor Rate Variance = (SR - AR)* AH = (12-12.50)*7500 = $3,750U

Labor efficiency variance = (SH - AH) * SR = (6400 - 7500)*12 = $13,200U

Labor Volume Variance = (budgeted production - Standard production) * Budgeted rate per unit

= (1000 - 800) *96 = $19200F

Total labor variance = Budgeted cost of direct labor - Actual cost of direct labor

= 96*1000 - $93,750 = $2,250F

Standard hours of labor per unit = 8 hours

Standard variable overhead per unit = $4

Standard variable overhead rate per hour = 4/8 = $0.50 per hour

Standard Hrs of direct labor = 800*8 = 6400 hours

Actual hrs of direct labor = 7500 hours

Actual variable overhead cost = $4,000

Actual rate of variable overhead = $4,000 / 7500 =$0.533 per hour

Variable Overhead Rate Variance = (SR - AR)* AH = (0.50-0.53333333)*7500 = $250U

Variable overhead efficiency variance = (SH - AH) * SR = (6400 - 7500)*0.50 = $550U

Variable Overhead Volume Variance = (budgeted production - Standard production) * Budgeted rate per unit

= (1000 - 800) *4 = $800 F

Total Variable overhead variance = Budgeted cost of variable overhead - Actual cost of variable overhad

= $4,000 - $4,000 = 0

Budget fixed overhead = $30,000

Actual fixed overhead = $32,000

Aborsption rate = Buegetec fixed overhead / Budgeted units = $30,000/1000 = $30 per unit

Applied overhead = $30 * 800 = $24,000 per unit

Fixed overhead price variance = Budgeted Overhead - Fixed Overhead = $30,000 - $32,000 = $2000 U

Fixed overhead volume variance = Budgeted fixed manufacturing Cost - Applied fixed manufacturing cost

=$30,000 - $24,000 = $6,000U

Total Fixed overhead budget variance = Actual fixed overhead - Applied fixed overhead = $32,000 - $24,000 = $8000U