Question

ABC Road Maps produces road maps. ABC uses a standard cost system to control manufacturing costs.

The following standard cost unit information is based on the static budget volume of 120,000 road maps per month:

                       

                                                                                                                                                           

                        Direct materials (40 sq. yards @ $0.02 per sq. yard)             $0.80

                        Direct labor (0.10 hours @ $15.00 per hour)                         1.50

                        Manufacturing overhead:

                                    Variable (0.10 hours @ $3.00 per hour)         0.30

                                    Fixed (0.10 hours @ $8.00 per hour)             0.80     1.10

Total cost per map                                                                  $3.40

                                                                                                           

Actual cost and production volume information is as follows:

Actual production was 118,000 maps.

Actual direct materials usage was 4,838,000 square yards; 5,000,000 square yards were purchased at an actual cost of $0.016 per square yard.

Actual direct labor usage of 11,600 hours at a total cost of $140,360.

Total actual overhead was $126,000, of which 75 percent was fixed.

1) Compute the eight variances that were discussed in class.

a-DM price variance VP=(AP-SP) x AQ ,

b-DM Quantity Variance VQ= (AQ-SQ) X SP

c-DL Price variance VP=(AP-SP) X AQ

d-DL quantity variance VQ=(AQ-SQ) X SP

e-VOH Price Variance VP=(AP-SP) X AQ

f-VOH Quantity variance VQ=(AQ-SQ) X SP

g-FOH Spending variance SP variance= Actual OH incurred - OH budgeted

h-FOH production volume variance PVV=OH Budgeted -Standard OH applied

2) Discuss some of the possible reasons why the variances computed turned out to be those amounts.

Answer 1

• All working forms part of the answers
• All the variances have been calculated.
• Data for variance calculation: Actual DATA and Standard data for 118,000 maps (units)

Actual DATA for		118000	units
	Quantity (AQ)	Rate (AR)	Actual Cost
Direct Material	4838000	$              0.016	$           77,408.00
Direct labor	11600	$              12.10	$       1,40,360.00
Variable Overhead	11600	$                2.72	$           31,500.00
Standard DATA for		118000	units
	Quantity (SQ)	Rate (SR)	Standard Cost
Direct Material	4720000	$                0.02	$           94,400.00
Direct labor	11800	$              15.00	$       1,77,000.00
Variable Overhead	11800	$                0.30	$             3,540.00
	Hrs	Rate	Amount
Fixed Overhead Budgeted	12000 [120000 maps x 0.1 hrs]	$                8.00	$           96,000.00
Standard FO Applied	11600	$               8.00	$           92,800.00
Actual Fixed Overhead incurred	11600	8.146551724	$           94,500.00

• All Variance Statement

Material Price Variance
(	Standard Rate	-	Actual Rate	)	x	Actual Quantity
(	$                 0.02	-	$                 0.02	)	x	4838000
	19352
	Variance		19352			Favourable-F
Material Quantity Variance
(	Standard Quantity	-	Actual Quantity	)	x	Standard Rate
(	4720000	-	4838000	)	x	$                           0.02
	-2360
	Variance		2360			Unfavourable-U
Material Spending Variance
(	Standard Cost	-	Actual Cost	)
(	$      94,400.00	-	$      77,408.00	)
	16992
	Variance		16992			Favourable-F
Labor Rate Variance
(	Standard Rate	-	Actual Rate	)	x	Actual Labor Hours
(	$               15.00	-	$               12.10	)	x	11600
	33640
	Variance		33640			Favourable-F
Labour Efficiency Variance
(	Standard Hours	-	Actual Hours	)	x	Standard Rate
(	11800	-	11600	)	x	$                        15.00
	3000
	Variance		3000			Favourable-F
Labor Spending Variance
(	Standard Cost	-	Actual Cost	)
(	$   1,77,000.00	-	$   1,40,360.00	)
	36640
	Variance		36640			Favourable-F
Variable Overhead Rate Variance
(	Standard Rate	-	Actual Rate	)	x	Actual Labor Hours
(	$                 0.30	-	$                 2.72	)	x	11600
	-28020
	Variance		28020			Unfavourable-U
Variable Overhead Efficiency Variance
(	Standard Hours	-	Actual Hours	)	x	Standard Rate
(	11800	-	11600	)	x	$                           0.30
	60
	Variance		60			Favourable-F
Variable Overhead Spending Variance
(	Standard Cost	-	Actual Cost	)
(	$         3,540.00	-	$      31,500.00	)
	-27960
	Variance		27960			Unfavourable-U
Fixed Overhead Spending Variance
(	Actual Fixed Overhead incurred	-	Fixed Overhead Budgeted	)
(	$      94,500.00	-	$      96,000.00	)
	-1500
	Variance		1500			Favourable-F
Fixed Overhead Production Volume Variance
(	Fixed Overhead Budgeted	-	Standard FO Applied	)
(	$      96,000.00	-	$      92,800.00	)
	3200
	Variance		3200			Unfavourable-U