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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.

REQUIRED:

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

$2.19
See Also This Related BrainMass Solution

Flexible Budgets and Standard Costing Problem

Standard Cost Card -- Per Unit
Direct materials, 4 yards at $3.50 per yard . . . . . . . . . . . . . . . . . . . . . . . . $14
Direct labor, 1.5 direct labor-hours at $12 per direct labor-hour . . . . . . . . . 18
Variable overhead, 1.5 direct labor-hours at $2 per direct labor-hour . . . . . 3
Fixed overhead, 1.5 direct labor-hours at $6 per di-rect labor-hour . . . . . . . 9
Standard cost per unit . . . . . . . . . . . . . . . . . . . . . . $44

The following additional information is available for the year just completed:

a.Company manufactured 20,000 units of product during the year;
b.A total of 80,000 yards of material were purchased during the year at a cost of $3.75 per yard. 78,000 yards of this material were used to manufacture the 20,000 units. Company determines the direct materials purchase price variance at the time of acquisition.
a.Direct laborers worked 32,500 hours during the year at an average compensation of $11.80 per hour.
b. Overhead cost is applied to the product on the basis of direct-labor hours. Data relating to manufactur-ing overhead costs follow:

Denominator activity level (direct labor-hours) . . . . . . . . . . . . . . 25,000
Budgeted fixed overhead costs (from the flexible budget) . . . . . $150,000
Actual fixed overhead costs . . . . . . . . . . . . . . . . . . . . . . . . . . . . $148,000
Actual variable overhead costs . . . . . . . . . . . . . . . . . . . . . . . . . $68,250

1.Compute both the direct materials price variance and quantity variance for the year;
2.Compute both the direct labor rate variance and efficiency variance for the year;
3.Compute both the variable overhead spending variance and efficiency variance for the year;
4.Compute the fixed overhead budget (spending) variance and volume variance for the year.

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