Drink Well, Inc., manufactures custom-ordered commemorative beer steins. Its sta

Question

Drink Well, Inc., manufactures custom-ordered commemorative beer steins. Its standard cost information follows:

Calculate the direct labor rate, efficiency, and total spending variances for Drink Well. (Do not round your intermediate calculations. Input all amounts as positive values. Indicate the effect of each variance by selecting "F" for favorable, "U" for unfavorable, and "None" for no effect (i.e., zero variance). Omit the "$" sign in your response.)

Standard
Quantity Standard Price
(Rate) Standard Unit
Cost Direct costs Clay 1.5 lbs. $ 1.60 per lb. $ 2.40 Direct labor 1.5 hrs. 12.00 per hr. 18.00 Variable MOH 1.20 per direct labor hour 1.80 Fixed MOH ($250,000/100,000 units) 2.50

Explanation / Answer

Variable overhead rate variance = (Standard rate - Actual rate) x Actual Hours = (1.2- 195000/150000) x 150000 = $15000U

Variable overhead efficiency variance = (Standard Hour - Actual Hour) x Standard Rate = (110000 x 1.5 - 150000) x 1.2 = $18000F

Total Spending variance

Total overhead cost = 195000 + 295000 = $490000

Budgeted allowance = 250000 + 150000 x 1.2 = $430000

Total spending variance = 430000 - 490000 = $60000 U

Hope this helps!

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