Question

3. DL and VarMOH variances: HoldOn Corporation makes a product with the following standard costs:

	Standard Quantity or Hours			Standard Price or Rate
Direct materials		9	grams	$	5.00	per gram
Direct labor		1.2	hours	$	14.00	per hour
Variable overhead		1.2	hours	$	2.90	per hour

The company planned to produce 4,100 units of output during August and reported the following results concerning this product in August.

Actual output		4,000	units
Raw materials used in production		29,000	Grams
Purchases of raw materials		29,000	Grams
Actual direct labor-hours		4,600	hours
Actual cost of raw materials purchases	$	59,500
Actual direct labor cost	$	65,550
Actual variable overhead cost	$	11,060

The company applies variable overhead on the basis of direct labor-hours.

1. Calculate the direct labor spending variance.
2. Calculate the direct labor efficiency variance.
3. Calculate the direct labor rate variance.
4. Calculate the variable overhead activity variance.
5. Calculate the variable overhead efficiency variance.
6. Calculate the variable overhead rate variance.

Answer 1

Solution

Total Labor spending variance	$           1,650.00	Favourable-F
Labor rate variance	$           1,150.00	Unfavourable-U
Labor Efficiency variance	$           2,800.00	Favourable-F

.

Variable Overhead Spending Variance	$           2,860.00	Favourable-F
Variable Overhead Rate Variance	$           2,280.00	Favourable-F
Variable Overhead Efficiency Variance	$               580.00	Favourable-F

Working

Actual DATA for		4000	Units
	Quantity (AQ)	Rate (AR)	Actual Cost
Direct labor	4600	$         14.25	$          65,550.00
Variable Overhead	4600	$            2.40	$          11,060.00

.

Standard DATA for		4000	Units
	Quantity (SQ)	Rate (SR)	Standard Cost
	[A]	[B]	[A x B]
Direct labor	( 1.2 Hour x 4000 Units)=4800 Hour	$                14.00	$            67,200.00
Variable Overhead	( 1.2 Hour x 4000 Units)=4800 Hour	$                   2.90	$            13,920.00

.

Labor Rate Variance
(	Standard Rate	-	Actual Rate	)	x	Actual Labor Hours
(	$                  14.00	-	$                   14.25	)	x	4600
	-1150
	Variance		$             1,150.00			Unfavourable-U
Labour Efficiency Variance
(	Standard Hours	-	Actual Hours	)	x	Standard Rate
(	4800	-	4600	)	x	$           14.00
	2800
	Variance		$             2,800.00			Favourable-F
Labor Spending Variance
(	Standard Cost	-	Actual Cost	)
(	$         67,200.00	-	$           65,550.00	)
	1650
	Variance		$             1,650.00			Favourable-F

.

Variable Overhead Rate Variance
(	Standard Rate	-	Actual Rate	)	x	Actual Labor Hours
(	$                    2.90	-	$                     2.40	)	x	4600
	$            2,280.00
	Variance		$             2,280.00			Favourable-F
Variable Overhead Efficiency Variance
(	Standard Hours	-	Actual Hours	)	x	Standard Rate
(	4800	-	4600	)	x	$              2.90
	$               580.00
	Variance		$                 580.00			Favourable-F
Variable Overhead Spending Variance
(	Standard Cost	-	Actual Cost	)
(	$         13,920.00	-	$           11,060.00	)
	2860
	Variance		$             2,860.00			Favourable-F