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Calculation of variances

Direct materials . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5 lbs. @ $ 6.80/lb.
Direct labor . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2.4 hrs. @ $14.00/hr.
Variable overhead (based on machine hours) . . . . . . . . . . 1.5 hrs. @ $ 4.50/hr. the following activity took place:
2,910 machine hours were worked.
11,400 lbs. of raw material were purchased for inventory at a total cost of $80,940.
1,900 cases of finished product were produced.
9,260 lbs. of raw material were used.
4,420 labor hours were worked at an average rate of $14.35 per hour.
$12,513 actual variable overhead costs were incurred.
Required:
Calculate the following variances and provide plausible explain results
Variable overhead spending variance.
Variable overhead efficiency variance.

Solution Preview

The other variances apart from the ones that you have asked for have also been calculated so that you get the complete picture.

Direct materials . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5 lbs. @ $ 6.80/lb.
Direct labor . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2.4 hrs. @ $14.00/hr.
Variable overhead (based on machine hours) . . . . . . . . . . 1.5 hrs. @ $ 4.50/hr. the following activity took place:
2,910 machine hours were worked.
11,400 lbs. of raw material were purchased for inventory at a total cost of $80,940.
1,900 cases of finished product were produced.
9,260 lbs. of raw material were used.
4,420 labor hours were worked at an average rate of $14.35 per hour.
$12,513 actual variable overhead costs were incurred.
Required:
Calculate the following variances and provide plausible explain results
Variable overhead spending variance.
Variable overhead efficiency variance.

Total Actual cost unit cost
Direct material purchased: 11,400 lbs a total cost of $80,940 $7.10 =80940/11400
Direct material used: 9,260 lbs @ 7.10 /lb 65,746
Direct labor used: 4420 hours at $14.35 per hour 63,427
Variable overhead cost; total machine hrs used is 2910 hrs 12,513 $4.30 =12513/2910

Solution:
Standard quantity per unit Standard rate Standard rate
Direct material Direct labour Variable ...

Solution Summary

The overhead variances have been calculated.

$2.19