Question

. CyNaval, Inc. manufactures a specialized tool used in constructing aircraft carriers. Last year, the Company budgeted for sales of 15,000 tools at $800 per tool, but actually manufactured and sold 16,000 tools for $700 per tool. Actual direct materials purchased and used was 90,000 pounds costing $3,000,000. CyNaval paid $2,500,000 for 60,000 hours of direct labor. Actual fixed overhead cost was $2,000,000, and budgeted fixed overhead cost was $2,200,000. Actual variable overhead cost was $1,600,000. Variable overhead is budgeted for $20 per direct labor hour. Production standards require 6 pounds of direct material per tool costing $50 per pound, and 6 direct laborhours per tool costing $25 per direct labor hour

Compute and label as favorable or unfavorable the following variances:

1. Revenue Sales Price Variance

2. Contribution Margin Sales Volume Variance

3. Direct Materials Efficiency Variance

4. Direct Materials Price Variance

5. Direct Labor Efficiency Variance

6. Direct Labor Price Variance

7. Variable Overhead Efficiency Variance

8. Variable Overhead Price Variance

Fixed Cost Spending Variance

Answer 1

Answer :

(a) Revenue sales price variance = ( Actual price - Budgeted price ) *Actual sales Quantity

= ( $ 700 - $ 800 ) * 16000

= $ 1600000 Unfavorable

(b) Contribution Margin sales volume variance = ( AQ - BQ) * Budgeted Contribution Margin per unit

= ( 16000 - 15000) *$ 230

= $ 230000 Favorable

Working note -1

Computation of contribution Margin per unit

Selling price	$ 800
Less variable cost per unit
Direct Material (6 pound * $ 50)	$ 300
Direct Labor (6 hour* $ 25)	$ 150
Variable overhead ( 6 hour * $ 20)	$ 120
Budgeted Contribution Margin per unit	$ 230

(c) Direct material Efficiency variance = ( SQ - AQ ) *SP

= (16000 * 6 - 90000) *$ 50

= $ 300000 Favorable

(d) Direct Material Price variance =  ( SP - AP )* AQ

= SP * AQ - AP*AQ

= $ 50*90000 - $ 3000000

= $ 1500000 Favorable

(e) Direct Labor Efficiency variance = ( SH - AH ) *SR

= ( 16000* 6 - 60000) * $ 25

= $ 900000 Favorable

(f) Direct labor Price variance = ( SR - AR ) * AH

= SR *AH - AR * AH

= $ 25*60000 hour - $ 2500000

= $ 1000000 Unfavorable

(g) Variable overhead efficiency variance = ( SH - AH ) *SR

= ( 16000*6 - 60000) *$ 20

= $ 720000 Favorable

(h) Variable overhead price variance =  (SR - AR ) * AH

= SR* AH - AR *AH

= $ 20*60000 hour - $ 1600000

= $ 400000 Unfavorable

(i) Fixed overhead spending variance = Budgeted Fixed overhead - Actual fixed overhead

= $ 2200000 - $ 2000000

= $ 200000 Favorable