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    Price, quantity, labor and efficiency variances

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    The Manjiri Corporation uses a standard cost system. It produces deluxe widgets and budgets for 1000 units to be produced and sold during the current year. The budgeted sales price per widget is $400.

    The standard cost per deluxe widget is listed below. The firm allocates manufacturing overhead using direct labor hours.

    Standard Cost Per Deluxe Widget

    Direct Material 10 pounds per unit @ $2 per pound $ 20
    Direct Labor 20 hours per unit @ $10 per labor hour 200
    Variable Manufacturing
    Overhead 20 hours per unit @ $2 per hour 40
    Fixed Manufacturing
    Overhead 20 hours per unit @ $3 per hour 60
    Standard Cost Per Unit $ 320

    NOTE: The predetermined fixed manufacturing overhead rate of $3 per hour is calculated as follows: (Budgeted Fixed Amount of $60,000) divided by (1000 units times 20 labor hours).

    A summary of actual activity during the year is listed below:

    Actual Sales totaled 1,200 units at an actual unit sales price per unit of $400.
    Actual Production totaled 1,200 units.
    Actual Materials Purchased amounted to $48,000 (12,000 pounds at $4 per pound).
    Actual Material Used amounted to 12,000 pounds.
    Actual Direct Labor Payroll amounted to $168,000 (21,000 hours @ $8 per hour).
    Actual Manufacturing Overhead totaled to:
    Actual Variable Manufacturing Overhead amounted to $48,000, and
    Actual Fixed Manufacturing Overhead amounted to $66,000.


    Note: For all variances indicate whether they are favorable(F) or Unfavorable(U).

    a) For direct materials, compute the price and quantity variances.
    b) For direct labor, compute the rate and efficiency variances.
    c) Compute the variable manufacturing overhead spending and efficiency variances.
    d) Compute the fixed manufacturing overhead budget and volume variances.

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    Solution Preview

    Please see the attached file.

    a) For direct materials, compute the price and quantity variances.

    Direct Material Price Variance = (Actual Price per Unit-Standard Price per Unit ) X Actual Quantity
    Actual Price per Unit = $4 per pound
    Standard Price per Unit = $2 per pound
    Actual Quantity = 12,000 pounds
    Price Variance = (4-2)X12,000 = $24,000 Unfavorable
    Direct Material Quantity Variance = (Actual Quantity used - Standard Quantity at Actual production) X Standard Price
    Actual Quantity = 12,000
    Standard Quantity at actual ...

    Solution Summary

    The solution explains the calculation of price, quantity, labor and efficiency variances