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Calculating Variances

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During the week ending on August 6th, the following activity took place:
- 2390 machine hrs were worked
- 11400lbs of raw materials were purchased for inventory at a total cost of $70,680
- 3,800 cases of finished products were produced
- 6,720 labor hrs were worked at an average rate of $12.25 per hr
- $8,126 actual variable overhead costs were incurred.

Calculate each of the following variances and explain the equation on how you got the variance.

a. price variance for raw materials purchased
b. raw materials usage variance
c. direct labor rate variance
d. direct labor efficiency variance
e. variable overhead spending variance
f. Variable overhead efficiency variance.

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Raw materials purchase price variance:
(Standard price - Actual price) ×Actual quantity purchased
($6.00 - ($70,680 / 11,400 pounds)) × 11,400 pounds =
($6.00 - $6.20) × 11,400
= $2,280 U

Raw materials usage variance:
(Standard usage - Actual usage) ...

Solution Summary

This solution provides steps to calculate the given variances.

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Calculate variances for Healing Touch and Turow Trailers

1. Healing Touch manufactures massage chairs with the following standard cost structure:
Standard Cost Sheet: Massage Chair
Metal tubing ¨ 6 meters @ $3 $ 18.00
Leather 2 square meters @ $7 $ 14.00
Padding 3 kilograms @ $4 $ 12.00
Direct labor 4 hours @ $15 $ 60.00
Total standard cost $104.00

During the month 500 chairs are manufactured and the following costs incurred:
Actual Costs Incurred for the Month: Massage Chair
Metal tubing 3,100 meters $9,455
Leather 1,100 square meters $7,722
Padding 1,600 kilograms $6,560
Direct labor 1,800 hours $27,270
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a. Calculate all materials and labor variances (including price, quantity, wage rate, and labor efficiency variances).
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2. Turow Trailers assembles horse trailers. Two models are manufactured: G7 and V8. While labor intensive, the production process is not very complicated. The single plant produces all the trailers with 48 work teams of two or three workers. Sixteen supervisors oversee the work teams. Materials handlers deliver all the parts needed for each trailer to the work team. Human resources, accounting, inspection, purchasing, and tools are the other major overhead departments. Some operating statistics for 2010 and 2011 follow.
2010 2011
Budgeted denominator volume (direct labor hours) 1 million 1 million
Flexible budget:
Fixed overhead $2.1 million $2.2 million
Variable overhead per direct labor hour $7 $8
Units produced:
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a. Calculate the overhead spending variance, the overhead volume variance, and the overhead
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b. Discuss who in the plant should be held responsible for each overhead variance.

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