Question

Tracy needs some additional assistance. She has compared her budget to what actually happened this year. She sees there are differences but she is unsure why there are differences. She has included the amount she budgeted to include the standard costs and actual costs. She believes you can determine the differences and explain them so she can make any necessary changes.

Her budget for materials was $32,000. She determined this by assuming she would pay $.12 per ounce and would need 266,700 oz. of material. Her actual cost for materials was $.11 per ounce and she used 266,000 oz. She would like to know the total variance and how much was because she spent a different amount per ounce and how much was due to using a different amount of material.

She budgeted $57,000 for labor. She budgeted based on paying the bakers $11.18 per hour and taking 5,100 hours. Her actual wages were $59,750. She actually paid $11.55 per hour and her bakers worked 5,175 hours. She would like for you to determine the total variance and how much was due to what she paid per hour and how much was due the time it took to bake the cupcakes. And let her know which variances are favorable and unfavorable.

Answer 1

For Materials

Due to Difference in Material Rate

Direct Materials Price Variance = (Standard Rate per Ounce - Actual Rate per Ounce) * Actual Ounces used

Actual Ounces Used = 266,000 Ounces

Standard Rate per Ounce = $ 0.12

Actual Rate per Ounce = $ 0.11

Direct Materials Price Variance = (0.12 - 0.11) * 266,000

Direct Materials Price Variance = $ 2,660 Favourable Variance

Variance Due to Different Amount of Material

Direct Materials Quantity Variance = (Standard Quantity of Material for Actual Output - Actual Ounces Used) * Standard Rate per Ounce

Standard Rate per Ounce = $ 0.12

Actual Ounces Used = 266,000

Standard Quantity = 266,700

Direct Materials Quantity Variance = (266,700 - 266,000) * 0.12

Direct Materials Quantity Variance = $ 84 Favourable Variance

Total Variance = Standard Budgeted Costs - Actual Cost

Actual Cost = 266,000 Ounces * $ 0.11 per Ounce

= $ 29,260

Standard Budgeted Costs = 266,700 Ounces * $ 0.12 per Ounce

= $ 32,004

Total Variance = 32,004 - 29,260

Total Variance = $ 2,744 Favourable Variance

For Labour Cost

Due to Difference in Labour Rate

Direct Labour Rate Variance = (Standard Rate per Hour- Actual Rate per Hour) * Actual Hours Worked

Actual Hours Worked = 5,175 Hours

Standard Rate per Hour = $ 11.18

Actual Rate per Hour = $ 11.55

Direct Labour Rate Variance = (11.18 - 11.55) * 5,175

Direct Labour Rate Variance = ($ 1,914.75) Unfavorable Variance

Variance Due to Different Amount of Hours Worked

Direct Labour Efficiency Variance = (Standard Quantity of Hours - Actual Hours Worked) * Standard Rate per Hour

Standard Rate per Hour = $ 11.18

Actual Hours Worked= 5,175 Hours

Standard Hours = 5,100 Hours

Direct Labour Efficiency Variance = (5,100 - 5,175) * 11.18

Direct Labour Efficiency Variance = ($ 838.50) Unfavorable Variance

Total Variance = Standard Budgeted Costs - Actual Cost

Actual Cost = 5,175 Hours * $ 11.55 per Hour

= $ 59,771.25

Standard Budgeted Costs = 5,100 Hours * $ 11.18 per Hour

= $ 57,018

Total Variance = 57,018 - 59,771.25

Total Variance = ($ 2,753.25) Unfavorable Variance