Question

Sweetwater Company manufactures two products, Mountain Mist and Valley Stream. The company prepares its master budget on the basis of standard costs. The following data are for March:

Standards Mountain Mist Valley Stream
Direct materials 3 ounces at $14.80 per ounce 4 ounces at $17.20 per ounce
Direct labor 5 hours at $60.20 per hour 6 hours at $78 per hour
Variable overhead (per direct labor-hour) $48 $53.20
Fixed overhead (per month) $364,425 $399,360
Expected activity (direct labor-hours) 6,450 7,800
Actual results
Direct material (purchased and used) 3,800 ounces at $14.20 per ounce 4,700 ounces at $19.00 per ounce
Direct labor 4,970 hours at $62.50 per hour 7,480 hours at $82.60 per hour
Variable overhead $257,550 $385,510
Fixed overhead $323,950 $399,100
Units produced (actual) 1,070 units 1,220 units

Required:

a. Compute a variance analysis for each variable cost for each product. (Do not round intermediate calculations. Indicate the effect of each variance by selecting "F" for favorable, or "U" for unfavorable. If there is no effect, do not select either option.)

b. Compute a fixed overhead variance analysis for each product. (Do not round intermediate calculations. Indicate the effect of each variance by selecting "F" for favorable, or "U" for unfavorable. If there is no effect, do not select either option.)

Answer 1

Given that

standard price of mountain mist = $14.8

standard price of valley stream = $17.2

actual price of mountain mist = $14.2

actual price of valley stream = $19

actual quantity of mountain mist = 3800

actual quantity of valley stream = 4700

standard quantity of mountain mist = 3 ounces * units produced

= 3*1070 =3210

standard quantity of valley stream =4*1220 = 4880

(a) computation of variance analysis sor each variable cost for each product

1) direct material cost variance =(standard quantity * standard price)-

(actual quantity*actual price)

particulars	standard qty	standard price	standard total	actual qty	actual price	actual total	direct material cost variance
mountain mist	3210	14.8	47508	3800	14.2	53960	(6452)
valley stream	4880	17.2	83936	4700	19	89300	(5364)

2 ) direct labour cost variance =(standard hours*standard rate)-(actual hours*actual rate)

standard hours of mountain mist = hours * units produced

=5 * 1070

= 5350

standard hours of valley stream = 6*1220

= 7320

particulars	standard hours	standard rate	standard total	actual hours	actual rate	actual total	direct labour cost variance
mountain mist	5350	60.2	322070	4970	62.5	310625	11445
`valley stream	7320	78	570960	7480	82.6	617848	(46888)

3) varience cost varience = standard variable cost per labour hour - actual variable cost

particulars	standard labour hiurs	standard rate	total standard variable cost	actual variable cost	variable cost variance
mountain mist	1070*5 =5350	48	256800	257550	(750)
valley stram	1220*6=7320	53.2	389424	385510	3914

(b) compute a fixed overhead varience analysis for each product

fixed overhead variance = (standard cost - actual cost)

particulars	standard cost	actual cost	fixed overhead varience
mountain mist	364425	323950	40475
valley stream	399360	399100	260