Question

In: Accounting

The accountants at Value Vases developed the following standards for producing exquisite vases from a liquid...

The accountants at Value Vases developed the following standards for producing exquisite vases from a liquid silicate:

Direct materials                                    2.5 gallons @ $5 per gallon

Direct labor                                          3.5 hours @ $15 per hour

Variable overhead                               $10.00 per direct labor hour

Fixed overhead                                    $5.00 per direct labor hour

            Value’s volume of direct labor hours for normal costing is 1,680 each month. In a recent month, Value produced 500 vases and incurred the following costs:

Direct materials purchased & used      1,200 gallons @ $6 per gallon

Direct labor                                          1,700 hours @ $14 per hour

Variable overhead                               $15,000

Fixed overhead                                    $8,500

a.   Calculate the following eight variances.

Variable overhead spending variance

Variable overhead efficiency variance

Fixed overhead spending variance

Fixed overhead production volume variance

b.   Suggest one possible cause for each of the following variances calculated in part (a):

Direct material price variance

Direct labor efficiency variance

Fixed overhead spending variance

Solutions

Expert Solution

(A) Variable overhead efficiency variance : $17000 - $17500 = $500F

       Variable overhead price variance : $17000 - $15000 = $2000F

       Fixed overhead spending variance : $8400 - $8500 = $100U

       Fixed overhead volume variance : $8400 - $8750 = $350F

(B) Below are possible causes for the four variance :

      1. Direct material price variance : TBR may have purchased higher quality raw materials, or vendors might have increased their prices.

      2. Direct labour efficency variance : TBR may have used fewer hours than normal because of higher quality materials, or process improvements might have caused labour hours to be reduced.

     3. Fixed overhead spending variance : An unexpected increase might have occurred in rent, utilities, or some other costs.


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