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Variances

The standards for one case of Dimwits are:
Direct materials 7.5 lbs @ \$1.30 / lb
Direct labor 5 hours @ \$11 / hr
Variable overhead (based on machine hours) 5 hours @ \$6.50 /hr

During the week ending September 28, the following activity took place:

20,600 lbs of raw material were purchased for inventory at a cost of \$1.35 per pound
2,400 cases of finished product were produced and 17,100 lbs of raw material were used
13,400 labor hours were worked at a total cost of \$131,320
\$81,740 actual variable overhead costs were incurred

Calculate each of the following variances:
a) raw materials purchase price variance
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

Solution Preview

a) raw materials purchase price variance

Price Variance = (Actual Price - Standard Price) X Quantity Purchased
Price Variance = (1.35 - 1.30) X 20,600 = \$1,030 Unfavorable as the actual price is higher than standard price

b) raw materials usage variance

Usage variance = (Actual Quantity used - Standard Quantity at Actual Production) X Standard Rate
Actual Quantity used = 17,100
Standard ...

Solution Summary

The solution explains how to calculate the various material, labor and overhead variances

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