Question

Instructions:

Genuine Spice Inc. began operations on January 1 of the current year. The company produces 8-ounce bottles of hand and body lotion called Eternal Beauty. The lotion is sold wholesale in 12-bottle cases for $100 per case. There is a selling commission of $20 per case. The January direct materials, direct labor, and factory overhead costs are as follows:

DIRECT MATERIALS
	Cost Behavior	Units per Case	Cost per Unit	Cost per Case
Cream base	Variable	100 ozs.	$0.02	$2.00
Natural oils	Variable	30 ozs.	0.30	9.00
Bottle (8-oz.)	Variable	12 bottles	0.50	6.00
				$17.00

DIRECT LABOR
Department	Cost Behavior	Time per Case	Labor Rate per Hour	Cost per Case
Mixing	Variable	20 min.	$18.00	$6.00
Filling	Variable	5	14.40	1.20
		25 min.		$7.20

FACTORY OVERHEAD
	Cost Behavior	Total Cost
Utilities	Mixed	$600
Facility lease	Fixed	14,000
Equipment depreciation	Fixed	4,300
Supplies	Fixed	660
		$19,560

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.

	Required-Part C:
11.	Determine and interpret the direct labor rate and time variances for the two departments. Do not round hours. Round your answers to two decimal places.*
12.	Determine and interpret the factory overhead controllable variance.*

11. Determine and interpret the direct labor rate and time variances for the two departments. For those boxes in which you must enter subtractive or negative numbers use a 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.

Direct Labor Rate Variance
	Mixing Department		Filling Department
Difference
		hrs.		hrs.
Direct labor rate variance

Direct Labor Time Variance
	Mixing Department		Filling Department
		hrs.		hrs.
		hrs.		hrs.
Difference		hrs.		hrs.
Direct labor time variance

The change in the _________ caused the labor rate variances. This change __________ have been responsible for the direct labor time variance.

12. Determine and interpret the factory overhead controllable variance. For those boxes in which you must enter subtractive or negative numbers use a minus sign. Enter a favorable variance as a negative number using a minus sign and an unfavorable variance as a positive number.

Factory Overhead Controllable Variance
Factory overhead controllable variance

The factory overhead controllable variance was caused by the variance in ______________ .

Answer 1

11.

Direct Labor Rate Variance
	Mixing	Filling
Actual Rate	$          18.20	$          14.00
Standard Rate	$          18.00	$          14.40
Difference	$            0.20	$          -0.40
Actual Hours	487.5	140
Direct Labor Rate Variance	$          97.50	$        -56.00
	Unfavorable	Favorable
Department	Cost Behaviour	Time Per case	Standard Hours
Mixing	Variable	20 min	500
Filling	Variable	5 min	125
Direct Labor Time Variance
	Mixing	Filling
Actual Hours	487.5	140
Standard Hours	500	125
Difference	-12.5	15
Standard Rate	$          18.00	$          14.40
Direct Labor Time Variance	$      -225.00	$       216.00
	Favorable	Unfavorable

The change in the Labor rates caused the labor rate variances. This change of labor rate have been responsible for the direct labor time variance.

12.

Factory Overhead controllable variance
Actual Variable Overhead	$       305.00
Variable Overhead at standard Cost	$       300.00
Factory Overhead controllable variance	$            5.00
	Unfavorable

The factory overhead controllable variance was caused by the variance in Utilities Expense