Water Movers, Inc. is known throughout the world for its H2O-X high-capacity wat

Question

Water Movers, Inc. is known throughout the world for its H2O-X high-capacity water pump, used in irrigation systems. The pump’s standard cost is as follows. The company’s predetermined fixed overhead rate is based on an expected capacity of 100,000 direct labor hours per month.

During the month of September, the company produced 17,350 of the 20,000 pumps that had been scheduled for production in the budget. The company used 326,460 pounds of material during September. The direct labor payroll for the month was $922,000 for 92,200 direct labor hours. Variable overhead costs were $725,400; fixed overhead costs were $639,600. The company’s purchasing agent signed a new supply contract that resulted in purchases of 445,300 pounds of direct materials at a total price of $2,449,150.

calculate Direct materials quantity variance, Direct labor efficiency variance, Variable overhead efficiency variance, and Fixed overhead spending variance

Standard Price Standard Quantity Standard Cost Direct materials $6 per pound 16 pounds $96 Direct labor $9 per DLH 5 DLH 45 Variable overhead $8 per DLH 5 DLH 40 Fixed overhead $6 per DLH 5 DLH 30 $211

Explanation / Answer

Direct material usage variance is the difference between standard cost of actual direct material used and standard cost of standard units of direct materials used.

Standard quantity for actual units produced       = 17,350units*16pounds

= 277,600 pounds

Actual units used for production                        = 326,460 pounds

Direct material usage variance

= (Actual usage in units-Standard usage in units)*Standard cost per unit.

= (326,460-277,600)*$6

= 48,860*$6

= $293,160Adverse

Direct material usage variance is $293,160Adverse

Direct labor efficiency variance is the difference between standard cost of actual direct labor hour taken and standard cost of standard labor hours.

Actual direct labor hours taken to produce 17,350 units are 92,200 hours.

Standard direct labors to produce 17,350 are (17,350*5) =86,750 hours

Standard direct labor hour rate is $9 per hour.

Direct labor efficiency variance

= (Actual hours-Standard hours)*Standard rate per hour.

= (92,200-86,750)*$9

=5,450*$9

=$49,050Adverse

Direct labor efficiency variance is $49,050Adverse

Variable overhead efficiency variance is the difference between the actual hours and budgeted hours which are applied to the standard variable overhead rate per hour.

Actual direct labor hours taken to produce 17,350 units are 92,200 hours.

Standard direct labors to produce 17,350 are (17,350*5) =86,750 hours

Standard variable overhead rate per hour is $8 per hour.

Variable overhead efficiency variance

= (Actual hours-Standard hours)*Standard overhead rate per hour.

= (92,200-86,750)*$8

= 5,450*$8

=$43,600Adverse

Variable overhead efficiency variance is $43,600 Adverse.

Fixed overhead spending variance is the difference between actual fixed overhead and budgeted fixed overhead

Actual fixed overhead incurred is $639,600.

Budgeted fixed overhead is standard cost of budgeted units to be produced. The budgeted units to be produced are 20,000 units. The standard fixed overhead cost per unit is $30.

Budgeted fixed overhead=Budgeted units produced*Standard fixed overhead cost per unit

=20,000*$30

=$600,000

Fixed overhead spending variance = Actual fixed overhead - Budgeted fixed overhead

=$639,600-$600,000

=$39,600Adverse

Fixed overhead spending variance is $39,600 Adverse.

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