In: Accounting
"Wonderful! Not only did our salespeople do a good job in meeting the sales budget this year, but our production people did a good job in controlling costs as well,” said Kim Clark, president of Martell Company. “Our $26,250 overall manufacturing cost variance is only 2.5% of the $1,050,000 standard cost of products made during the year. That's well within the 3% parameter set by management for acceptable variances. It looks like everyone will be in line for a bonus this year."
The company produces and sells a single product. The standard cost card for the product follows:
Inputs | (1) Standard Quantity or Hours |
(2) Standard Price or Rate |
Standard Cost (1) × (2) |
||||
Direct materials | 4.00 feet | $ | 3.50 | per foot | $ | 14.00 | |
Direct labor | 1.5 hours | $ | 12 | per hour | 18.00 | ||
Variable overhead | 1.5 hours | $ | 2.00 | per hour | 3.00 | ||
Fixed overhead | 1.5 hours | $ | 6.00 | per hour | 9.00 | ||
Total standard cost per unit | $ | 44.00 | |||||
The following additional information is available for the year just completed:
Denominator activity level (direct labor-hours) | 25,000 | |
Budgeted fixed overhead costs | $ | 150,000 |
Actual variable overhead costs incurred | $ | 68,250 |
Actual fixed overhead costs incurred | $ | 148,000 |
Required:
1. Compute the materials price and quantity variances for the year.
2. Compute the labor rate and efficiency variances for the year.
3. For manufacturing overhead compute:
a. The variable overhead rate and efficiency variances for the year.
b. The fixed overhead budget and volume variances for the year.
1 | Material Price Variance | (SP-AP)*AQ | $ 19,500 | U |
Material Quantity Variance | (SQ*AQ)*SP | $ 7,000 | F | |
2 | Labor Rate Variance | (SR-AR)*AH | $ 6,500 | F |
Labor Efficiency Variance | (SH-AH)*SR | $ 30,000 | U | |
3a | Variable Overhead Rate Variance | (SR-AR)*AH | $ 3,300 | U |
Variable Overhead Efficiency Variance | (SH-AH)*SR | $ 3,000 | U | |
3b | Fixed Overhead Budget Variance | Budgeted FOH - Actual FOH | $ 2,000 | F |
Fixed Overhead Volume Variance | (SH-BH)*SR | $ 30,000 | F |
Material Variance | |
SP | $ 3.50 |
AP | $ 3.75 |
AQ | 78,000 |
SQ (20000*4) | 80,000 |
Labor Variance | |
SR | $ 12.00 |
AR | $ 11.80 |
AH | 32,500 |
SH (20000*1.5) | 30,000 |
Variable Overhead Variance | |
SR | $ 2.00 |
AR (68250/32500) | $ 2.10 |
AH | 33,000 |
SH (15000*2.1) | 31,500 |
Fixed Overhead Variance | |
Budgeted FOH | $ 150,000 |
Actual FOH | $ 148,000 |
BH | 25,000 |
SR | $ 6.00 |