Question

Comprehensive Problem 5
Part C:

Note: This section is a continuation from Parts A and B of the comprehensive problem. Be sure you have completed Parts A and B before attempting Part C. You may have to refer back to data presented in Parts A and B as well as use answers from those parts when completing this section.

Genuine Spice Inc. began operations on January 1 of the current year. The company produces 8-ounce bottles of hand and body lotion called Eternal Beauty. The lotion is sold wholesale in 12-bottle cases for $100 per case. There is a selling commission of $20 per case. The January direct materials, direct labor, and factory overhead costs are as follows:

DIRECT MATERIALS Cost Behavior Units per Case Cost per Unit Direct Materials Cost per Case Cream base Variable 100 ozs. $0.02 $2.00 Natural oils Variable 30 ozs. 0.30 9.00 Bottle (8-oz.) Variable 12 bottles 0.50 6.00 $17.00 DIRECT LABOR Department Cost Behavior Time per Case Labor Rate per Hour Direct Labor Cost per Case Mixing Variable 20 min. $18.00 $6.00 Filling Variable 5 14.40 1.20 25 min. $7.20 FACTORY OVERHEAD Cost Behavior Total Cost Utilities Mixed $600 Facility lease Fixed 14,000 Equipment depreciation Fixed 4,300 Supplies Fixed 660 $19,560

Part C—August Variance Analysis

During September of the current year, the controller was asked to perform variance analyses for August. The January operating data provided the standard prices, rates, times, and quantities per case. There were 1,500 actual cases produced during August, which was 250 more cases than planned at the beginning of the month. Actual data for August were as follows:

	Actual Direct Materials Price per Unit		Actual Direct Materials Quantity per Case
Cream base	$0.016	per oz.	102	ozs.
Natural oils	$0.32	per oz.	31	ozs.
Bottle (8-oz.)	$0.42	per bottle	12.5	bottles

	Actual Direct Labor Rate	Actual Direct Labor Time per Case
Mixing	$18.20	19.50 min.
Filling	14.00	5.60 min.
Actual variable overhead	$305.00
Normal volume	1,600 cases

The prices of the materials were different than standard due to fluctuations in market prices. The standard quantity of materials used per case was an ideal standard. The Mixing Department used a higher grade labor classification during the month, thus causing the actual labor rate to exceed standard. The Filling Department used a lower grade labor classification during the month, thus causing the actual labor rate to be less than standard.

Required:

10. Determine the direct materials price and quantity variances for the three materials. Enter the costs in dollars and cents (carried to three decimal places when required). Enter all amounts as positive numbers.

Direct Materials Price Variance:
	Cream Base		Natural Oils		Bottles
Actual price	$		$		$
Standard price
Difference	$		$		$
Actual quantity (units)	X	ozs.	X	ozs.	X	btls.
Direct materials price variance	$		$		$
Indicate if favorable or unfavorable

Enter the standard price to two decimal places.

Direct Materials Quantity Variance:
	Cream Base		Natural Oils		Bottles
Actual quantity		ozs.		ozs.		btls.
Standard quantity
Difference		ozs.		ozs.		btls.
Standard price	X		X		X
Direct materials quantity variance	$		$		$
Indicate if favorable or unfavorable

11. Determine the direct labor rate and time variances for the two departments. Do not round hours. Enter the costs in dollars and cents. Enter all amounts as positive numbers.

Direct Labor Rate Variance:
	Mixing Department		Filling Department
Actual rate	$		$
Standard rate
Difference	$		$
Actual time (hours)	X		X
Direct labor rate variance	$		$
Indicate if favorable or unfavorable

Direct Labor Time Variance:
	Mixing Department		Filling Department
Actual time (hours)
Standard time (hours)
Difference
Standard rate	X $		X $
Direct labor time variance	$		$
Indicate if favorable or unfavorable

12. Determine the factory overhead controllable variance. Enter all amounts as positive numbers.

Actual variable overhead	$
Variable overhead at standard cost
Factory overhead controllable variance	$
Indicate if favorable or unfavorable

13. Determine the factory overhead volume variance. Round rate to two decimal places and round your final answer to two decimal places. Enter all amounts as positive numbers.

Normal volume (cases)
Actual volume (cases)
Difference
Fixed factory overhead rate	$
Factory overhead volume variance	$
Indicate if favorable or unfavorable

14. The production volume of  cases was planned at the beginning of August. The variances compare the actual cost and the standard cost of for the month. Thus, the standard cost must be based on the  units of actual production.

Answer 1

• All working forms part of the answer
• Answers are provided as asked, data is filled in from the question itself. Not much explanation required.
• Favourable variance will be when actual cost is less than standard.
• Since, standard cost is being deducted from actual cost below, the negative resultant figure denote Favourable Variance.
• Actual cases taken 1500, Standard cases taken 1600
• Answers

Direct Materials Price Variance:
	Cream Base		Natural Oils		Bottles
Actual price	0.016		0.32		0.42
Standard price	0.02		0.3		0.5
Difference	-0.004		0.02		-0.08
Actual quantity (units)	153000	ozs.	46500	ozs.	18750	btls.
Direct materials price variance	$-612		$930		$-1500
Indicate if favorable or unfavorable	favourable		Unfavourable		Favourable
Direct Materials Quantity Variance:
	Cream Base		Natural Oils		Bottles
Actual quantity	153000	ozs.	46500	ozs.	18750	btls.
Standard quantity	150000		45000		18000
Difference	3000	ozs.	1500	ozs.	750	btls.
Standard price	0.02		0.3		0.5
Direct materials quantity variance	$60		$450		$375
Indicate if favorable or unfavorable	Unfavourable		Unfavourable		Unfavourable
Direct Labor Rate Variance:
	Mixing Department		Filling Department
Actual rate	18.2		14
Standard rate	18		14.4
Difference	0.2		-0.4
Actual time (hours)	487.5		140
Direct labor rate variance	$97.5		$-56
Indicate if favorable or unfavorable	Unfavourable		Favourable
Direct Labor Time Variance:
	Mixing Department		Filling Department
Actual time (hours)	487.5		140
Standard time (hours)	500		125
Difference	-12.5		15
Standard rate	18		14.4
Direct labor time variance	$-225		$216
Indicate if favorable or unfavorable	Favourable		Unfavourable
ctual variable overhead	305
Variable overhead at standard cost	325
Factory overhead controllable variance	$-20
Indicate if favorable or unfavorable	Favourable
Normal volume (cases)	1600
Actual volume (cases)	1500
Difference	100
Fixed factory overhead rate	12.225
Factory overhead volume variance	$1222.5
Indicate if favorable or unfavorable	Unfavorable