Question

Sweetwater Company manufactures two products, Mountain Mist and Valley Stream. The company prepares its master budget on the basis of standard costs. The following data are for March:

Standards Mountain Mist Valley Stream
Direct materials 3 ounces at $14.80 per ounce 4 ounces at $17.20 per ounce
Direct labor 5 hours at $60.20 per hour 6 hours at $78 per hour
Variable overhead (per direct labor-hour) $48 $53.20
Fixed overhead (per month) $364,425 $399,360
Expected activity (direct labor-hours) 6,450 7,800
Actual results
Direct material (purchased and used) 3,800 ounces at $14.20 per ounce 4,700 ounces at $19.00 per ounce
Direct labor 4,970 hours at $62.50 per hour 7,480 hours at $82.60 per hour
Variable overhead $257,550 $385,510
Fixed overhead $323,950 $399,100
Units produced (actual) 1,070 units 1,220 units

Required:

a. Compute a variance analysis for each variable cost for each product. (Do not round intermediate calculations. Indicate the effect of each variance by selecting "F" for favorable, or "U" for unfavorable. If there is no effect, do not select either option.)

b. Compute a fixed overhead variance analysis for each product. (Do not round intermediate calculations. Indicate the effect of each variance by selecting "F" for favorable, or "U" for unfavorable. If there is no effect, do not select either option.)

Answer 1

a. Compute a variance analysis for each variable cost for each product.

1.Direct material cost variance

=Standard Qty required for actual production * Standard price-Actual Qty*Actual price

Purticulers	Standard Qty	Standard Pice	Standard Total	Actual Qty	Actual Price	Actual Total	Variance Analysis
	A	B	(C=A*B)	D	E	(F=D*E)	(G=C-F)
Mountain Mist	=1070*3 =3210	$14.8	$47,508	3800	$14.2	$53960	$6452(U)
Valley Stream	=1220*4 =4880	$17.2	$83936	4700	$19	$89300	$5364(U)

2.Direct Labour cost variance

=Standard hours required for actual production*Standard rate - Actual Qty*Actual price

Purticulers	Standard hours	Standard rate	Total	Actual hours	Actual Rate	Total	Variance
	A	B	(C=A*B)	D	E	(F=D*E)	(G=C-F)
Mountain Mist	=1070*5 =5350	$60.2	$322,070	4970	$62.5	$310,625	$11,445(F)
Valley Stream	=1220*6 =7320	$78	$570,960	7480	$82.6	$617,848	$46,888(U)

3.Variable cost variance.

=Standard variable Cost per labour hour- Actual variable Cost

purticulers	Standard labour hours	Standard Rate	Total Standard variable Cost	Actual variable cost	Variance
	A	B	C=A*B	D	E=C-D
Mountain Mist	=1070 units*5 =5350	$48	$256,800	$257,550	$750(U)
Valley Stream	=1220 units*6 =7320	$53.2	$389,424	$385,510	$3914(F)

b. Compute a fixed overhead variance analysis for each product

Purticulers	Standard cost	Actual Cost	Variance
	A	B	(C=A-B)
Mountain Mist	$364,425	$323,950	$40,475(F)
Valley Stream	$399,360	$399,100	$260(F)