Question

Direct materials (30 Ibs. @ $4.00 per Ib.)	$120.00
Direct labor (7 hrs. @ $14 per hr.)	98.00
Factory overhead-variable (7 hrs. @ $7 per hr.)	49.00
Factory overhead-fixed (7 hrs. @ $11 per hr.)	77.00
Total standard cost	$344.00

 The predetermined overhead rate is based on a planned operating volume of 80% of the productive capacity of 63,000 units per quarter. The following flexible budget information is available. 

	Operating Levels
	70%	80%	90%
Production in units	44,100	50,400	56,700
Standard direct labor hours	308, 700	352,800	396,900
Budgeted overhead
Fixed factory overhead	$ 3,880,800	$3,880,800	$3,880, 800
Variable factory overhead	$2,160,900	$2,469,600	$2,778,300

During the current quarter, the company operated at 90% of capacity and produced 56,700 units of product; actual direct labor totaled 393,900 hours. Units produced were assigned the following standard costs. 

Direct materials (1,701,000 Ibs. @ $4.00 per Ib.)	$ 6,804,000
Direct labor (396,900 hrs. @ $14 per hr.)	5,556,600
Factory overhead (396,900 hrs. @ $18 per hr.)	7,144,200
Total standard cost	$19,504,800

Actual costs incurred during the current quarter follow. 

Direct materials (1,686,000 Ibs. @ $5.10 per lb.)	$ 8,598,600
Direct labor (393,900 hrs. @ $12.00 per hr.)	4,726,800
Fixed factory overhead costs	3,380,000
Variable factory overhead costs	3,164,200
Total actual costs	$19,869,600

Required: 

1. Compute the direct materials cost variance, including its price and quantity variances. 

2. Compute the direct labor cost variance, including its rate and efficiency variances. 

3. Compute the overhead controllable and volume variances. 

Answer 1

Solution 1:

Direct Material Cost Variance
Actual Cost					Standard cost for actual quantity					Standard Cost
AQ *	AP =				AQ *	SP =				SQ *	SP =
1686000	$5.10	$8,598,600.00			1686000	$4.00	$6,744,000.00			1701000	$4.00	$6,804,000.00
			$1,854,600.00	U				$60,000.00	F
			Direct Material Price Variance					Direct Material Qty variance
Direct material price variance					$1,854,600.00	U
Direct material quantity variance					$60,000.00	F
Direct material cost variance					$1,794,600.00	U

Solution 2:

Direct Labor Cost Variance
Actual Cost					Standard cost for actual quantity					Standard Cost
AH *	AR =				AH *	SR =				SH *	SR =
393900	$12.00	$4,726,800.00			393900	$14.00	$5,514,600.00			396900	$14.00	$5,556,600.00
			$787,800.00	F				$42,000.00	F
			Direct Labor rate Variance					Direct Labor Efficiency Variance
Direct Labor Rate variance					$787,800.00	F
Direct Labor Efficiency variance					$42,000.00	F
Direct labor cost variance					$829,800.00	F

Solution 3:

Controllable Variance
Actual overhead	$6,544,200.00
Budgeted overhead	$6,659,100.00
Controllable variance	$114,900.00	F

Fixed overhead volume variance
Budgeted fixed overhead	$3,880,800.00
Fixed overhead cost applied	$4,365,900.00
Fixed overhead volume variance	$485,100.00	F