Question

Question 2: Toyota Motors has the following monthly data regarding its engine
production:
● Materials purchased and used, 3,300 pounds
● Direct-labor costs incurred, 5,500 hours, $42,350
● Variable-overhead costs incurred, $4,620
● Finished units produced, 1,000
● Actual materials cost, $.97 per pound
● Standard variable-overhead rate, $.80 per direct-labor hour
● Standard direct-labor cost, $8 per hour
● Standard materials cost, $1 per pound
● Standard pounds of material in a finished unit, 3
● Standard direct-labor hours per finished unit, 5
Compute the following: (a) Materials price variance; (b) Materials quantity
variance; (c) Labor rate variance; (d) Labor usage variance; (e) Variable overhead
spending variance; (f) Variable overhead efficiency variance; and (g) Overall
production variance for the engine division.

Answer 1

Computation of direct material variances

1. Standard quantity required per unit in pounds		3 pounds
2. Standard quantity required in for actual production in pounds (1000units )	SQ	3000 pounds (1000 units * 3 pounds )
3. Actual quantity required for actual production (1000 units )	AQ	3300 pounds
4. Actual price per pound	AP	$ 0.97
5. Standard price per pound	SP	$ 1

A) Direct material cost   variance	SQ* SP – AQ *AP 3000 pounds *$1- 3300*$ 0.97 $ 3000- $ 3201 $ 201U(Unfavorable)
B) Direct material price variance	AQ*SP- AQ*AP 3300 pounds * $ 1 – 3300 pounds *$ 0.97 $ 3300- $ 3201 99F( Favorable )
C) Direct Material Usage variance	SQ* SP- AQ* SP 3000 pounds * $1 – 3300 pounds $ 1 $ 300 U( unfavorable)

Computation of labor variances:

1. Standard labor hours required per unit		5 hrs
2. Standard hours required for actual production (1000units)	SH	5000 hrs (1000 units * 5 hrs )
3. Actual labor Hours required for actual production	AH	5500 hrs
4. Actual labor rate per hour	AR	$ 7.70
5. Standard labor rate per hour	SR	$ 8.0

Actual labor rate per hour   = Actual cost incurred for labor hours / Actual hrs

                                                   = $ 42,350/ 5500 hrs

                                                    = $ 7.70

Labor cost variance	SH* SR– AH *AR 5000hrs *$ 8.00 – 5500 hrs *$ 7.70 $ 40,000 - $ 42,350 $ 2,350 U (unfavorable)
Labor rate variance	AH*SR- AH*AR 5500 hrs * $ 8 – 5500 hrs *$ 7.70 $ 44,000 - $ 42,350 $ 1,650 F (Favorable)
Labor usage variance	SH* SR- AH* SR 5000 hrs *$ 8.00- 5500hrs * $ 8.00 $ 40000- $ 44,000 $ 4000 U (unfavorable )

Computation of variable overhead variances:

1. Standard variable overhead hours required per unit		5 hrs
2. Standard hours required for actual production units (1000units )	SOH	1000 units * 5 hrs = 5000hrs Actual production * Standard hours per unit
3. Actual variable overhead Hours required per unit	AOH	5500 hrs
4. Actual overhead rate per unit	AR	$ 0.84
5. Standard variable overhead per unit	SR	$ 1.00

Actual variable overhead rate per hour = Actual variable overheads incurred / Actual hrs

                                                                    = $ 4620/ 5000 hrs                                                       

                                                                    = $ 0.84

Variable overhead cost variance	SOH* SR– AOH *AR 5000*$ 1.00 -5500*$ 0.84 $ 5000- $ 4620 $ 380 F (Favorable)
Variable overhead spending variance	AOH*SR- AOH*AR 5500hrs $ 1.00- 5500 hrs * $ 0.84 $ 5500- $ 4620 $ 880 F (Favorable)
Variable overhead   efficiency variance	SOH* SR- AOH* SR 5000 hrs * $ 1.00- 5500 hrs *$ 1.00 $ 5000 -$ 5500 500 U (Unfavorable)

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