Question

PA9-1 Calculating Direct Material, Direct Labor, Variable Overhead Variances [LO 9-3, 9-4, 9-5]

Barley Hopp, Inc., manufactures custom-ordered commemorative beer steins. Its standard cost information follows:

	Standard Quantity		Standard Price (Rate)			Standard Unit Cost
Direct materials (clay)	1.60	lbs.	$	1.70	per lb.	$	2.72
Direct labor	1.60	hrs.	$	16.00	per hr.		25.60
Variable manufacturing overhead (based on direct labor hours)	1.60	hrs.	$	1.30	per hr.		2.08
Fixed manufacturing overhead ($374,000.00 ÷ 170,000.00 units)							2.20

Barley Hopp had the following actual results last year:

Number of units produced and sold		175,000
Number of pounds of clay used		318,200
Cost of clay	$	572,760
Number of labor hours worked		220,000
Direct labor cost	$	4,510,000
Variable overhead cost	$	340,000
Fixed overhead cost	$	380,000

Required:
1. Calculate the direct materials price, quantity, and total spending variances for Barley Hopp. (Do not round your intermediate calculations. Indicate the effect of each variance by selecting "F" for favorable and "U" for unfavorable.)



2. Calculate the direct labor rate, efficiency, and total spending variances for Barley Hopp. (Do not round your intermediate calculations. Indicate the effect of each variance by selecting "F" for favorable and "U" for unfavorable.)



3. Calculate the variable overhead rate, efficiency, and total spending variances for Barley Hopp. (Do not round your intermediate calculations. Indicate the effect of each variance by selecting "F" for favorable/Overapplied and "U" for unfavorable/underapplied.)

Answer 1

1.
Direct Material Price Variance = ( SP -AP ) * AQ
= ( SP * AQ ) - ( AP * AQ )
= ( SP * AQ ) - Actual material cost
= ( $ 1.70 * 318,200 ) - $ 572,760
= $ 31,820 U
Thus, Direct Material Price Variance is $ 31,820 U
Direct Material Quantity Variance = ( SQ - AQ ) * SP
= ( 280,000 - 318,200 ) * $ 1.70
= $ 64,940 U
Thus, Direct Material Quantity Variance is $ 64,940 U
SQ = Actual production * Standard material requied per unit
= 175000 * 1.60
= 280,000
Direct Material Spending Variance = Standard Cost - Actual cost
= (SQ * SP ) - Actual cost
= ( 280,000 * $ 1.70 ) - $ 572,760
= $ 96,760 U
Thus, Direct Material Spending Variance is $ 96,760 U
2.
Labor rate variance = ( SR - AR ) * AH
= ( $ 16.00 - $ 20.50 ) * 220,000
= $ 990,000 U
Therefore, labor rate variance $ 990,000 U
AR = Actual labor cost / actual labor hours
= $ 45,10,000 / 220,000
= $ 20.50
Labor efficiency variance = ( SH - AH ) * SR
= ( 280,000 - 220,000 ) * $ 16.00
= $ 960,000 F
Thus, Labor efficiency variance is $ 960,000 F
Standard labor hours allowed (SH) = Actual production * Standard labor hours required per jogging mates
= 175,000 * 1.60
= 280,000 labor hours.
Labor spending​ variance = Standard labor cost - Actual labor cost
= ( SH * SR ) - ( AH *AR )
= ( 280,000 * $ 16.00 ) - $ 45,10,000
= $ 30,000 U
Thus, Labor spending​ variance is $ 30,000 U
3.
Variable Overhead Rate Variance = ( SVR -AVR ) * AH
= ( SVR * AH ) - ( AVR * AH )
= ( SVR * AH ) - Actual variable overhead cost
= ( $ 1.30 * 220,000 ) - $ 340,000
= $ 286,000 - $ 340,000
= $ 54,000 U
Thus, Variable Overhead Rate Variance $ 54,000 U
Variable Overhead Efficiency Variance = ( SH - AH ) * SVR
= ( 280,000 - 220,000 ) * $ 1.30
= $ 78,000 F
Thus, Variable Overhead Efficiency Variance $ 78,000 F
Variable overhead spending variance = Standard variabble cost - Actual variable cost
= ( SH * SVR ) - Actual variable cost
= ( 280,000 * $ 1.30 ) - $ 340,000
= $ 24,000 F
Thus, Variable Overhead spending Variance $ 78,000 F
Where,
AH =	Actual labor hours
SH =	Standard labor hours
AR =	Actual labor rate per hour
SR =	Standard labor rate per hour
SQ =	Standard Quantity of Material
AQ =	Actual Quantity of Material
SP =	Standard Price of per material
AP =	Actual Price of per material
SVR =	Standard variable overhead rate per labor hour
AVR =	Actual variable overhead rate per labor hour