Question

Milberg Co. uses absorption costing and standard costing to improve cost control.

In 2016, the total budgeted overhead rate was $1.55 per direct labour hour. When preparing the budget, Milberg expected a monthly activity level of 10,000 direct labour hours. The monthly variable overhead cost budgeted for this level of activity was $9,500.

The following data on actual results are provided for the month of November 2016.

Materials purchased	20,000 units
Direct labour costs incurred	$36,000
Total of direct labour rate and efficiency variances	$   500 F
Actual wage rate ($0.20 less than standard)	$  4.80
Underapplied variable overhead costs	$ 1,065 U
Total underapplied fixed and variable overhead costs	$ 2,256 U
Materials price variance	$   200 F
Materials efficiency variance	$   610 F
Price of purchased materials	$   0.60 per unit
Materials used	15,000 units

Instructions

Identify and calculate as many different variances as you can for 2016.

(adapted from CGA-Canada, now CPA Canada)

LPV=$ 1500 F

Answer 1

	Minus sign indicate unfavorable variance.
	Measure	Unit
	Standard price per Unit	$          0.61
	Actual price per Unit	$          0.60
Check notes 1	Standard quantity in Units	16000
	Actual quantity in used Units	15000
	Actual quantity in Purchased Units	20000
	Standard price per Unit	0.61
Less	Actual price per Unit	-0.60
	Difference	0.01
Multiply	Actual quantity in Purchased Units	20000
	Material price variance	$           200
	Indicate	Favorable
	Standard quantity in Units	16000
Less	Actual quantity in used Units	-15000
	Difference	1000
Multiply	Standard price per Unit	0.61
	Material quantity variance	$           610
	Indicate	Favorable
	Notes 1
	Material Price Variance Favorable	200
	Divided by: Number of units purchased.	20,000
	Difference in Price	0.01
	Add: Actual Price per unit	0.60
	Standard Price Per unit	0.61
	Materials efficiency variance	610
	Divided by : Standard Price Per unit	0.61
	Difference in units	1000
	Add: Actual material used	15000
	Standard material Used	16000

	Minus sign indicate unfavorable variance.
	Measure	Hour
4.80+0.20	Standard price per Hour	$          5.00
	Actual price per Hour	$          4.80
Check notes 2	Standard labor Hours	7300
36000/4.80	Actual labor Hours	7500
	Standard price per Hour	5.00
Less	Actual price per Hour	-4.80
	Difference	0.20
Multiply	Actual labor Hours	7500
	Labor price (rate) variance	$        1,500
	Indicate	Favorable
	Standard labor Hours	7300
Less	Actual labor Hours	-7500
	Difference	-200
Multiply	Standard price per Hour	5.00
	Labor quantity (efficiency) variance	$      (1,000)
	Indicate	Unfavorable
	Total of direct labour rate and efficiency variances	$            500
	Indicate	Favorable
	Notes 2
	Direct labour costs incurred	36000
	Add: Total of direct labour rate and efficiency variances - Favorable	500
	Standard labor Cost	36500
	Divided by: Standard Wages rate per hour	5
	Standard labor	7300
	Total under applied fixed and variable overhead costs	2256	Unfavorable
	Less: Under applied variable overhead costs	1065	Unfavorable
	Fixed Overhead Volume Variance	1191	Unfavorable

	Minus sign indicate unfavorable variance.
	Measure	Labor Hour
	Standard variable overhead rate per Labor Hour	$    1.5500000
Notes 3	Actual variable overhead rate per Labor Hour	$    1.6506667
	Standard Labor Hours	7300
	Actual Labor Hours	7500
	Standard variable overhead rate per Labor Hour	1.5500000
Less	Actual variable overhead rate per Labor Hour	-1.6506667
	Difference	-0.1006667
Multiply	Actual Labor Hours	7500
	Variable overhead Price (Rate) variance	$               (755)
	Indicate	Unfavorable
	Standard Labor Hours	7300
Less	Actual Labor Hours	-7500
	Difference	-200
Multiply	Standard variable overhead rate per Labor Hour	1.55
	Variable overhead efficiency variance	$               (310)
	Indicate	Unfavorable
	Under applied variable overhead costs	$           (1,065)
	Indicate	Unfavorable
	Standard Variable overhead (7300*1.55)	11315
	Under applied variable overhead costs	1065
	Actual Variable Overhead	12380
	Divided by: Actual labor Hour	7500
	Actual Variable Overhead rate per labor Hour	1.650666667