Question

Thompson Company uses a standard cost system for its single product. The following data are available:

Actual experience for the current year:

Purchases of raw materials (11,000 yards at $11.00 per yard)	$	121,000
Raw materials used		15,000	yards
Direct labor costs (10,400 hours at $8.00 per hour)	$	83,200
Actual variable overhead cost	$	84,050
Units produced		12,800	units

Standards per unit of product:

Raw materials	1.5 yards at $13.00 per yard
Direct labor	.8 hours at $7.50 per hour
Variable overhead	$7.00 per direct labor hour

Required:

Compute the following variances for raw materials, direct labor, and variable overhead, assuming that the price variance for materials is recognized at point of purchase: (Input all amounts as positive values. Do not round intermediate calculations. Leave no cells blank - be certain to enter "0" wherever required. Indicate the effect of each variance by selecting "F" for favorable, "U" for unfavorable, and "None" for no effect (i.e., zero variance). Omit the "$" sign in your response.)

a.	Direct materials price variance	$	(Click to select)  F  U  None
b.	Direct materials quantity variance	$	(Click to select)  F  U  None
c.	Direct labor rate variance	$	(Click to select)  F  U  None
d.	Direct labor efficiency variance	$	(Click to select)  F  U  None
e.	Variable overhead rate variance	$	(Click to select)  F  U  None
f.	Variable overhead efficiency variance	$	(Click to select)  F  U  None

Answer 1

a. Direct Materials price variance = (Actual quantity purchased * Actual price) - (Actual quantity purchased * Standard price)

= (11,000 * $11) - (11,000 * $13)

= $22,000 Favorable

b. Direct Materials quantity variance = (Actual quantity used * Standard price) - (Standard quantity * Standard price)

= (15,000 * $13) - (12,800 * 1.5 * $13)

= $54,600 Favorable

c. Direct Labour rate variance = (Actual hours * Actual rate) - (Actual hours * Standard rate)

= (10,400 * $8) - (10,400 * $7.5)

= $5,200 Unfavorable

d. Direct Labour efficiency variance = (Actual hours * Standard rate) - (Standard hours * Standard rate)

= (10,400 * $7.5) - (12,800 * 0.8 * $7.5)

= $1,200 Unfavorable

e. Variable overhead rate variance = (Actual hours * Actual rate) - (Actual hours * Standard rate)

= $84,050 - (10,400 * $7)

= $11,250 Unfavorable

f. Variable overhead efficiency variance = (Actual hours * Standard rate) - (Standard hours * Standard rate)

= (10,400 * $7) - (12,800 * 0.8 * $7)

= $1,120 Unfavorable