Question

During January, Shorten Chemicals Pty Ltd produced 1,000 units of a special product called Stannous Sulphate. The accounting records indicated the following: Direct material purchased 36,000 kilograms @ $2.76 per kilogram Direct material used 19,000 kilograms Direct labour 4,200 hours @ $36 per hour Stannous Sulphate has the following standard prime costs: Direct material: 20 kilograms @$2.70 kilogram $54.00 Direct labour hours: 4 hours @34 per hour 136.00 Standard prime cost per unit $190.00 For the month of January the accounting records show the following relating to overheads: Standard variable overhead rate $5 per machine hour Standard quantity of machine hours 2 hours per unit of output Budgeted fixed overheads $18,000 Budgeted output 1,200 units Actual results for January Actual output 1,000 units Actual variable overhead $12,000 Actual fixed overhead $19,500 Actual machine time 2,500 machine hours Required: 1 For the month of January, calculate the following variances, indicating whether each is favourable or unfavourable: (a) Direct material price variance. (b) Direct labour efficiency variance. (c) Variable overhead spending variance (d) Variable overhead efficiency variance (e) Fixed overhead budget variance (f) Fixed overhead volume variance

Answer 1

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Answer a
Standard cost of Quantity purchased	Amount $	Note
Actual Quantity purchased	36,000.00	A
Standard material rate per yard	2.70	B
Standard cost of Quantity purchased	97,200.00	C=A*B
Actual Quantity purchased	36,000.00	See A
Actual rate	2.76	D
Actual cost	99,360.00	E=A*D
Price Variance (Unfavorable)	2,160.00	F=E-C
Answer b	Amount $
Standard labor required per unit	4.00	G
Standard rate per hour	34.00	H
Units manufactured	1,000.00	I
Standard labor cost	136,000.00	J=G*H*I
Standard cost of Actual hours	Amount $
Actual hours	4,200.00	K
Standard labor rate per hour	34.00	See H
Standard cost of Actual labor used	142,800.00	L=K*H
Labor Efficiency Variance (Unfavorable)	6,800.00	M=L-J
Answer c and d
Variable Overhead	Amount $
Standard time required per unit	2.00	N
Standard rate per hour	5.00	O
Standard Variable Overhead per unit	10.00	P=N*O
Units manufactured	1,000.00	See I
Standard variable overhead cost	10,000.00	Q=P*I
Standard cost of Actual hours	Amount $
Actual machine hours	2,500.00	R
Standard rate per hour	5.00	See O
Standard cost of actual variable overhead	12,500.00	S=R*O
Actual variable overhead	12,000.00	T
Efficiency Variance (Unfavorable)	2,500.00	U=S-Q
Spending Variance (Favorable)	(500.00)	V=T-S
Answer e	Amount $
Actual Fixed overhead	19,500.00
Less: Budgeted Fixed overhead cost	18,000.00
Fixed overhead budget variance (Unfavorable)	1,500.00
Answer f	Amount $
Budgeted output	1,200.00	W
Machine hour required per unit	2.00	See N
Standard labor hours	2,400.00	X=W*N
Budgeted Fixed overhead cost	18,000.00	Y
Fixed overhead absorption rate	7.50	Z=Y/X
Actual machine hours	2,500.00	See R
Fixed overhead absorbed	18,750.00	AA=Z*R
Fixed overhead volume variance (Favorable)	750.00	AB=AA-Y