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1. DL and VarMOH variances (5pts): Handerson Corporation makes a product with the following standard costs:...

1. DL and VarMOH variances (5pts): Handerson Corporation makes a product with the following standard costs:

Standard Quantity or Hours

Standard Price or Rate

Direct materials

8.5

kilos

$

6.00

per kilo

Direct labor

0.4

hours

$

20.00

per hour

Variable overhead

0.4

hours

$

6.00

per hour

The company planned to produce 3,350 units of output during August and reported the following results concerning this product in August.

Actual output

3,200

units

Raw materials used in production

29,030

kilos

Purchases of raw materials

31,600

kilos

Actual direct labor-hours

1,160

hours

Actual cost of raw materials purchases

$

195,920

Actual direct labor cost

$

22,736

Actual variable overhead cost

$

7,540

The company applies variable overhead on the basis of direct labor-hours. The direct materials (DM) purchases variance is computed when the materials are purchased.

1. Calculate the direct labor spending variances.

2. Calculate the direct labor efficiency variance.

3. Calculate the direct labor rate variance.

4. Calculate the variable overhead efficiency variance.

5. Calculate the variable overhead rate variance.

Solutions

Expert Solution

Handerson Corp

  1. Calculation of direct labor spending variances –

Direct labor spending variance is also known as direct labor rate variance.

Direct labor rate variance = AH x (AR – SR)

Actual hours, AH = 1,160

Actual rate, AR = 22,736/1,160 = $19.60 per hour

Standard rate, SR = $20 per hour

Direct labor rate variance = 1,160 x (20 – 19.60) = $464 F

  1. Direct labor efficiency variance –

Direct labor efficiency variance = SR x (AH – SH)

Standard hours, SH = 3,200 units x 0.4 hours = 1,280 hours

Actual hours, AH = 1,160

Standard rate = $20 per hour

Direct labor efficiency variance = $20 x (1,160 – 1,280)

= $20 x (-120) = $2,400 F

  1. Variable overhead efficiency variance –

Variable overhead efficiency variance = SR x (AH – SH)

Standard rate, SR = $6 per hour

Actual hours = 1,160 hours

Standard hours = 3,200 units x 0.4 hours = 1,280 hours

Variable overhead efficiency variance = $6 x (1,160 – 1,280)

= $6 x (-120) = $720 F                                                                                                                                                                                                                                                                                                                                                                                                                 

  1. Variable overhead rate variance –

Variable overhead rate variance = AH x (AR – SR)

Actual hours, AR = 1,160

Actual rate, AR = $7,540/1,160 = $6.50 per hour
Standard rate, SR = $6 per hour

Variable overhead rate variance = 1,160 x (6.50 – 6.00)

= $580 U                                                                                                                                                                       

ekkarill92 answered 2 years ago
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