# Variance Analysis for AGRICHEM INDUSTRIES

AgriChem Industries manufactures fertilizer concentrate and uses cost standards. The fertilizer

is produced in 500-pound batches; the normal level of production is 250 batches of fertilizer per

month. The standard costs per batch are as follows:

Standard

Costs per Batch

Direct materials:

Various chemicals (500 pounds per batch at $0.60/pound) . . . . . . . . . . $300

Direct labor:

Preparation and blending (25 hours per batch at $7.00/hour) . . . . . . . . . 175

Manufacturing overhead:

Fixed ($50,000 per month 4 250 batches) . . . . . . . . . . . . . . . . . . . . . . . $200

Variable (per batch) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25 225

Total standard cost per batch of fertilizer . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $700

During January, the company temporarily reduced the level of production to 200 batches of

fertilizer. Actual costs incurred in January were as follows:

Direct materials (102,500 pounds at $0.57/pound) . . . . . . . . . . . . . . . . . . . . . . . . . . $ 58,425

Direct labor (4,750 hours at $6.80/hour) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32,300

Manufacturing overhead . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 54,525

Total actual costs (200 batches) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $145,250

Standard cost of 200 batches (200 batches 3 $700 per batch) . . . . . . . . . . . . . . . . 140,000

Net unfavorable cost variance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 5,250

Instructions

You have been engaged to explain in detail the elements of the $5,250 net unfavorable cost variance

and to record the manufacturing costs for January in the company's standard cost accounting

system.

a. As a first step, compute the materials price and quantity variances, the labor rate and efficiency

variances, and the overhead spending and volume variances for the month.

For part A. question I'm responsible for completing the first 3 parts to this question:

Computation of Materials Price Variance

Computation of Quantity Variance

Computation of Labor Rate Variance

https://brainmass.com/business/accounting/variance-analysis-agrichem-industries-628058

#### Solution Summary

The solution is provided in excel format and include a step-by-step calculations for solving for the following Variances:

*Materials Quantity Variance (MQV)

*Materials Price Variance (MPV)

*Labor Rate Variance (LRV)

*Labor Efficiency Variance (LEV)

*Overhead Spending Variance

*Overhead Budget Variance