Question

Beluga Corp has developed standard costs based on a predicted operating level of 352,000 units of production, which is 80% of capacity. Variable overhead is $281,600 at this level of activity, or $0.80 per unit. Fixed overhead is $440,000. The standard costs per unit are:

Direct Materials (0.5 lbs @ $1/lb)	$.050	per unit
Direct Labor (1 hour @ $6/hour)	$6.00	per unit
Overhead (1 hour @ $2.05/hour)	2.05	per unit

Beluga actually produced 330,000 units at 75% of capacity and actual costs for the period were:

Direct Materials (162,000 lbs)	$170,100
Direct Labor (329,500 hours)	$2,042,900
Fixed Overhead	$438,000
Variable Overhead	$262,000

Calculate the following variances and indicate whether each one is favorable or unfavorable:

1. Direct materials price variance

2. Direct materials usage variance

3. Direct labor rate variance

4. Direct labor efficiency variance

5. Overhead controllable variance

6. Overhead volume variance

Answer 1

Solution 1&2:

Direct Material Cost Variance
Actual Cost					Standard cost for actual quantity					Standard Cost
AQ *	AP =				AQ *	SP =				SQ *	SP =
162000	$1.05	$170,100.00			162000	$1.00	$162,000.00			165000	$1.00	$165,000.00
			$8,100.00	Unfavorable				$3,000.00	Favorable
			Direct Material Price Variance					Direct Material Qty variance
Direct material price variance					$8,100.00	Unfavorable
Direct material quantity variance					$3,000.00	Favorable

Solution 3 & 4:

Direct Labor Cost Variance
Actual Cost					Standard cost for actual quantity					Standard Cost
AH *	AR =				AH *	SR =				SH *	SR =
329500	$6.20	$2,042,900.00			329500	$6.00	$1,977,000.00			330000	$6.00	$1,980,000.00
			$65,900.00	Unfavorable				$3,000.00	Favorable
			Direct Labor rate Variance					Direct Labor Efficiency Variance
Direct Labor Rate variance					$65,900.00	Unfavorable
Direct Labor Efficiency variance					$3,000.00	Favorable

Solution 5:

Controllable Variance
Actual overhead	$700,000.00
Budgeted overhead	$704,000.00
Controllable variance	$4,000.00	Favorable

Solution 6:

Fixed overhead volume variance
Budgeted fixed overhead	$440,000.00
Fixed overhead cost applied	$412,500.00
Fixed overhead volume variance	$27,500.00	Unfavorable