Question

The following information is for the standard and actual costs for Happy Corporation:

Standard Costs:

Budgeted units of production 16,000 [80% (or normal) capacity]

Standard labor hours per unit 4

Standard labor rate $26 per hour

Standard material per unit 8 lbs.

Standard material cost $12 per pound

Standard variable overhead rate $15 per labor hour

Budgeted fixed overhead $640,000

Fixed overhead rate is based on budgeted labor hours at 80% (or normal) capacity.

Actual Costs:

Actual production 16,500 units

Actual material purchased and used 130,000 pounds

Actual total material cost $1,600,000

Actual labor 65,000 hours

Actual total labor costs $1,700,000

Actual variable overhead $1,000,000

Actual fixed overhead $640,000

Enter favorable variances as negative numbers. Do not round interim calculations.

a. Determine the direct materials quantity variance, price variance, and total cost variance.

Direct materials:

Quantity variance:	$
Price variance:	$
Total direct materials cost variance:	$

b. Determine the direct labor time variance, rate variance, and total cost variance.

Direct labor:

Time variance:	$
Rate variance:	$
Total direct labor cost variance:	$

c. Determine the factory overhead volume variance, controllable variance, and total factory overhead cost variance.

Factory overhead:

Volume variance:	$
Controllable variance:	$
Total factory overhead cost variance:	$

Answer 1

Solution a:

Direct Material Cost Variance
Actual Cost					Standard cost for actual quantity					Standard Cost
AQ *	AP =				AQ *	SP =				SQ *	SP =
130000	$12.31	$1,600,000.00			130000	$12.00	$1,560,000.00			132000	$12.00	$1,584,000.00
			$40,000.00	Unfavorable				$24,000.00	Favorable
			Direct Material Price Variance					Direct Material Qty variance
Direct material price variance					$40,000.00	Unfavorable
Direct material quantity variance					$24,000.00	Favorable
Total direct material variance					$16,000.00	Unfavorable

Solution b:

Direct Labor Cost Variance
Actual Cost					Standard cost for actual quantity					Standard Cost
AH *	AR =				AH *	SR =				SH *	SR =
65000	$26.15	$1,700,000.00			65000	$26.00	$1,690,000.00			66000	$26.00	$1,716,000.00
			$10,000.00	Unfavorable				$26,000.00	Favorable
			Direct Labor rate Variance					Direct Labor Efficiency Variance
Direct Labor Rate variance					$10,000.00	Unfavorable
Direct Labor Efficiency variance					$26,000.00	Favorable
Total direct labor variance					$16,000.00	Favorable

Solution c:

Controllable Variance
Actual overhead	$1,640,000.00
Budgeted overhead	$1,630,000.00
Controllable variance	$10,000.00	Unfavorable

Fixed overhead volume variance
Budgeted fixed overhead	$640,000.00
Fixed overhead cost applied	$660,000.00
Fixed overhead volume variance	$20,000.00	Favorable

Total Factory overhead variance
Controllable variance	$10,000.00	Unfavorable
Volume Variance	$20,000.00	Favorable
Total overhead variance	$10,000.00	Favorable