Question

Shawnee Manufacturing Company produces a component part of a top secret military communication device. Standard production and cost data for the part, Product X, follow:

Planned production		30,000	units
Per unit direct materials		2	pounds	@	$	1.80	per pound
Per unit direct labor		3	hours	@	$	8.00	per hour
Total estimated fixed overhead costs	$	702,000

Shawnee purchased and used 63,345 pounds of material at an average cost of $1.85 per pound. Labor usage amounted to 89,160 hours at an average of $8.10 per hour. Actual production amounted to 30,900 units. Actual fixed overhead costs amounted to $738,000. The company completed and sold all inventory for $1,800,000.

Required

Prepare a materials variance information table showing the standard price, the actual price, the standard quantity, and the actual quantity.

Calculate the materials price and usage variances. Indicate whether the variances are favorable (F) or unfavorable (U).

Prepare a labor variance information table showing the standard price, the actual price, the standard hours, and the actual hours.

Calculate the labor price and usage variances. Indicate whether the variances are favorable (F) or unfavorable (U).

Calculate the predetermined overhead rate, assuming that Shawnee uses the number of units as the allocation base.

Calculate the fixed cost spending and volume variances and indicate whether they are favorable (F) or unfavorable (U).

Determine the amount of gross margin Shawnee would report on the year-end income statement.

Answer 1

1) Material Variance Information Table

Standard Price per pound	$1.80
Actual Price per pound	$1.85
Standard Qty for Actual Production (30,900 units*2 pounds)	61,800
Actual Qty purchased and used	63,345

2) Materials Price Variance = (Std Price - Actual Price)*Actual Qty

= ($1.80 - $1.85)*63,345 = (3,167.25) Unfavorable

Materials Usage Variance = (Std Qty - Actual Qty)*Std Price

= (61,800-63,345)*$1.80 = ($2,781) Unfavorable

3) Labor Variance Information Table

Standard Rate per hour	$8.00
Actual Rate per hour	$8.10
Standard hours for Actual Production (30,900 units*3 hours)	92,700
Actual hours used	89,160

4) Labor Rate Variance = (Std Rate - Actual rate)*Actual Hrs

= ($8.00 - $8.10)*89,160 = (8,916) Unfavorable

Labor Efficiency Variance = (Std Hrs - Actual Hrs)*Std Rate

= (92,700-89,160)*$8.00 = $28,320 Favorable

5) Predetermined Overhead Rate = Total Estimated Fixed Overhead Costs/Planned Production

= $702,000/30,000 units = $23.40 per unit

6) Applied Fixed Overhead = Actual Units*Predetermined OH rate

= 30,900 units*$23.40 = $723,060

Actual Fixed Overhead = $738,000

Budgeted Fixed Overhead = $702,000

Fixed Cost Volume Variance = Applied Fixed OH - Budgeted Fixed OH

= $723,060 - $702,000 = $21,060 Favorable

Fixed Cost Spending Variance = Budgeted Fixed OH - Actual Fixed OH

= $702,000 - $738,000 = ($36,000) Unfavorable