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# Variances

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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

#### 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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