Question

Orange City often hires outside lawyers as consultants to work on specialized legal cases. For Fiscal Year 2018 the city expected to have 25 such cases, with a total cost of $60,000 for the work. This estimate was based on FY 2017 results of 300 hours of the lawyers’ time billed at $200 per hour. The actual number of cases in 2018 turned out to be only 22, but the lawyers raised their rate to $220 per hour. The total expense for the lawyers was $87,120. What were the total variance, volume variance, quantity variance, and price variance for the lawyers’ work? Indicate which variances are favorable or unfavorable.

Answer 1

PARTICULARS	STANDARD	ACTUAL
NO OF CASES	25.00	22.00
HOURS WORKED	300.00	396.00
HOURS PER CASE	12.00	18.00
COST PER HR	200.00	220.00
TOTAL COST	60,000.00	87,120.00
TOTAL VARIANCE=	STANDARD COST-ACTUAL COST
	60000-87120=	-27120
PRICE VARIANCE=	(STANDARD COST PER HR -ACTUAL COST PER HR)Xactual hours worked
	(200-220)x396=	-7920
standard hours for actual cases	264.00
VOLUME VARIANCE=	(standard quantity for actual output less actual quantity) x standard price
	(264-396)X200=	-26400
QUANTITY VARIANCE=	(300-396)X200	-19200

NO VARIANCE IS FAVOURABLE ALL VARIANCES ARE UNFAVOURABLE