Variance Analysis for AGRICHEM INDUSTRIES
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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
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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
Education
- BA, Ain Shams University, Cairo Egypt
- MBA, California State University, Sacramento
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