Question

Majer Corporation makes a product with the following standard costs: 

	Standard Quantity or Hours	Standard Price or Rate	Standard Cost Per Unit
Direct materials	6.5 ounces	$4.00 per ounce	$26.00
Direct labor	0.5 hours	$16.00 per hour	$8.00
Variable overhead	0.5 hours	$4.00 per hour	$2.00

The company reported the following results concerning this product in February. 

Originally budgeted output	5,500 units
Actual output	8,300 units
Raw materials used in production	30,600 ounces
Actual direct labor-hours	1,960 hours
Purchases of raw materials	33,000 ounces
Actual price of raw materials	$72.90 per ounce
Actual direct labor rate	$82.40 per hour
Actual variable overhead rate	$3.20 per hour

The company applies variable overhead on the basis of direct labor-hours. The direct materials purchases variance is computed when the materials are purchased. 

The variable overhead rate variance for February is:

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Majer Corporation makes a product with the following standard costs: 

	Standard Quantity or Hours	Standard Price or  Rate	Standard Cost Per Unit
Direct materials	6.5 ounces	$3.00 per ounce	$19.50
Direct labor	0.7 hours	$12.00 per hour	$8.40
Variable overhead	0.7 hours	$3.00 per hour	$2.10

The company reported the following results concerning this product in February.

Originally budgeted output	5,100 units
Actual output	5,200 units
Raw materials used in production	30,200 ounces
Actual direct labor-hours	1,920 hours
Purchases of raw materials	32,600 ounces
Actual price of raw materials	$32.90 per ounce
Actual direct labor rate	$42.40 per hour
Actual variable overhead rate	$4.20 per hour

The company applies variable overhead on the basis of direct labor-hours. The direct materials purchases variance is computed when the materials are purchased. 

The variable overhead efficiency variance for February is:

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Majer Corporation makes a product with the following standard costs: 

	Standard Quantity or Hours	Standard Price or Rate	Standard Cost Per Unit
Direct materials	3.0 ounces	$12.50 per ounce	$37.50
Direct labor	0.7 hours	$18.50 per hour	$12.95
Variable overhead	0.7 hours	$11.00 per hour	$7.70

The company reported the following results concerning this product in February. 

Originally budgeted output	11,600 units
Actual output	11,400 units
Raw materials used in production	33,640 ounces
Actual direct labor-hours	8,180 hours
Purchases of raw materials	35,240 ounces
Actual price of raw materials	$12.25 per ounce
Actual direct labor rate	$16.95 per hour
Actual variable overhead rate	$9.20 per hour

The company applies variable overhead on the basis of direct labor-hours. The direct materials purchases variance is computed when the materials are purchased. 

The materials price variance for February is:

Answer 1

(1) variable overhead rate variance finds difference between actual variable overhead rate and budgeted variable overhead rate per hour and multiplies it with actual hours used.

Actual hours(Actual rate-standard rate)

1960 hours ($3.20 - $4)

=1,568$ favorable (as the actual rate is lower than standard rate the variance is favorable)

(2) variable overhead efficiency variance is difference between actual hours used and standard hours budgeted for actual production multiplied by standard rate per hour

actual hours = 1920

standard hours for actual production = hours per unit* actual production

=0.7 hours**5200 units

=3640 hours

variable overhead efficiency variance = standard rate ( actual hours-standard hour)

=$3 (1920-3640)

=5160$ favorable [ as the actual hours used is lesser than standard he variance is favorable]

(3) material price variance= Actual quantity (actual price-standard price)

=33,640 ($12.25-$12.50)

=$8,410 favorable [ as the actual price per ounce of material is lower than standard the variance is favorable]