Question

PA9-5 Calculating Direct Materials, Direct Labor, Variable Manufacturing Overhead Variances [LO 9-3, 9-4, 9-5]

Bullseye Company manufactures dartboards. Its standard cost information follows:

	Standard Quantity		Standard Price (Rate)			Standard Unit Cost
Direct materials (cork board)	2.5	sq. ft.	$	2.00	per sq. ft.	$	5.00
Direct labor	1	hrs.	$	14.00	per hr.		14.00
Variable manufacturing overhead (based on direct labor hours)	1	hrs.	$	0.50	per hr.		0.50
Fixed manufacturing overhead ($40,000 ÷ 160,000 units)							0.25

Bullseye has the following actual results for the month of September:

Number of units produced and sold		140,000
Number of square feet of corkboard used		360,000
Cost of corkboard used	$	756,000
Number of labor hours worked		148,000
Direct labor cost	$	1,938,800
Variable overhead cost	$	72,000
Fixed overhead cost	$	50,000

Required:
1. Calculate the direct materials price, quantity, and total spending variances for Bullseye. (Do not round your intermediate calculations. Indicate the effect of each variance by selecting "F" for favorable, "U" for unfavorable.)

    

2. Calculate the direct labor rate, efficiency, and total spending variances for Bullseye. (Do not round your intermediate calculations. Indicate the effect of each variance by selecting "F" for favorable, "U" for unfavorable.)

    

3. Calculate the variable overhead rate, efficiency, and total spending variances for Bullseye. (Do not round your intermediate calculations. Indicate the effect of each variance by selecting "F" for favorable/Overapplied and "U" for unfavorable/underapplied.)

    

Answer 1

• Working data

Actual DATA for		140000	units
	Quantity (AQ)	Rate (AR)	Actual Cost
Direct Material	360000	$                   2.10	$        756,000.00
Direct labor	148000	$                13.10	$     1,938,800.00
Variable Overhead	148000	$                   0.49	$           72,000.00

Standard DATA for		140000	units
	Quantity (SQ)	Rate (SR)	Standard Cost
	[A]	[B]	[A x B]
Direct Material	( 2.5 sq ft x 140000 units)=350000 sq ft	$                   2.00	$     700,000.00
Direct labor	( 1 hours x 140000 units)=140000 hours	$                14.00	$ 1,960,000.00
Variable Overhead	( 1 hours x 140000 units)=140000 hours	$                   0.50	$       70,000.00

• Requirement 1

Material Price Variance
(	Standard Rate	-	Actual Rate	)	x	Actual Quantity
(	$                                2.00	-	$                       2.10	)	x	360000
	-36000
	Variance		$            36,000.00			Unfavourable-U
Material Quantity Variance
(	Standard Quantity	-	Actual Quantity	)	x	Standard Rate
(	350000	-	360000	)	x	$                           2.00
	-20000
	Variance		$            20,000.00			Unfavourable-U
Material Spending Variance
(	Standard Cost	-	Actual Cost	)
(	$                   700,000.00	-	$          756,000.00	)
	-56000
	Variance		$            56,000.00			Unfavourable-U

• Requirement 2

Labor Rate Variance
(	Standard Rate	-	Actual Rate	)	x	Actual Labor Hours
(	$                              14.00	-	$                    13.10	)	x	148000
	133200
	Variance		$          133,200.00			Favourable-F
Labour Efficiency Variance
(	Standard Hours	-	Actual Hours	)	x	Standard Rate
(	140000	-	148000	)	x	$                        14.00
	-112000
	Variance		$          112,000.00			Unfavourable-U
Labor Spending Variance
(	Standard Cost	-	Actual Cost	)
(	$                1,960,000.00	-	$      1,938,800.00	)
	21200
	Variance		$            21,200.00			Favourable-F

• Requirement 3

Variable Overhead Rate Variance
(	Standard Rate	-	Actual Rate	)	x	Actual Labor Hours
(	$                                0.50	-	$                       0.49	)	x	148000
	2000
	Variance		$              2,000.00			Favourable-F
Variable Overhead Efficiency Variance
(	Standard Hours	-	Actual Hours	)	x	Standard Rate
(	140000	-	148000	)	x	$                           0.50
	-4000
	Variance		$              4,000.00			Unfavourable-U
Variable Overhead Spending Variance
(	Standard Cost	-	Actual Cost	)
(	$                      70,000.00	-	$            72,000.00	)
	-2000
	Variance		$              2,000.00			Unfavourable-U