rale l mauu overhead is s6 per hour. The average are based on a denominator acti

ID: 2433321 • Letter: R

Question

rale l mauu overhead is s6 per hour. The average are based on a denominator activity level of 1.250 hours per month Required 1. Compute the materials price variance for the plates purchased last month. and compute a materials quantity variance for the plates used last month 2. a. Compute a labour rate variance and a labour efficiency variance for the lab. h In most hospitals three-quarters of the workers in the lab are certified technicians and one-quarter are assistants. In an effort to reduce costs, Clearwater Hospital employs only one-half certified technicians and one-half assistants. Would recommend that this policy be continued? Explain. Compute the variable overhead spending and efficiency variances. Is there any relation- ship between the variable overhead efficiency variance and the labour efficiency vari- 3. ance? Explain. Compute the fixed overhead budget and volume variances. 4. PROBLEM 10-20 Comprehensive Standard Cost Variances ILO2, LO3, LO4, LOS, LO6 Clarissa McWhirter, vice-president of Cyprus Company, was pieased io see a small variance on the income statement after the trouble the company had been having in controlling manu facturing costs. She noted that the $12.250 overall manufacturing variance reported last period was well below the 3% limit that had been set for variances. The company produces and sells a single product. The standard cost card for the product follows: Standard Cost Card-Per Unit Direct labour, 15 direct labour-hours at $12 per direct labour-hourB $ 14 Fixed overhead, 15 direct labour-hours at $6 per direct labour-hour. Standard cost per unit. $44

Explanation / Answer

1. Direct material Price Variance

=(Standard Price - Actual Price) × Actual Quantity

=($3.50 - $3.75) × 78000 = -0.25 × 78000 = -19500

Quantity Variance

= (Standard Quantity Allowed - Actual Quantity) × Standard Price of a Unit of Direct Material

Now Standard Quantity Allowed =Actual Units Produced × Standard Quantity of Direct Material Per Unit

Actual Quantity Used During the Period 78000

Standard Quantity Allowed =Actual Units Produced × Standard Quantity of Direct Material Per Unit

=20000 × 4 = 80000

Direct Quantity Variance = (Standard Quantity Allowed - Actual Quantity) × Standard Price of a Unit of Direct Material

(80000 - 78000) × 3.50 = 2000 × 3.50 =7000

2. Direct Labour Rate variance

= Actual Cost - Standard Cost of Actual hours

Actual Cost = Actual hours × Actual rate

=32500 × 11.80 = 383500

Standard Cost of Actual hours = Actal housrs × Standard rate

= 32500 × 12 = 390000

Direct Laour Rate Variance = Actual Cost - Standard cost of Actual hours

=383500 - 390000 = -6500

Direct Labour Efficiency Variance

=Standard Cost of Actual hours - Standard Cost

Actual hours = 32500 × 11.80 = 383500

Standard Cost of Actual Hours = Actual hours x Standard rate

=383500 x 12 = 4602000

Standard Cost = Standard hours x Standard Rate

Standard hours = 32500 x 15 = 487500

Standard rate = $12

Standard Cost = 487500 x 12 = 5850000

Direct Labour Efficiency Variance = Standard Cost of Actual hours - Standard Cost

=4602000 - 5850000 = -1248000

3. a) Variable Overhead Spending

= (Standard variable overhead rate - actual Variable overhead rate) × Actual Labour hours

Actual Variable overhead rate = total variabe overhead cost / Actual labour hours = 68250/32500 =2.1

= (2 - 2.1) × 32500 = -0.1 × 32500 = -3250

Variable Overhead Efficiency Variance

=Standard overhead rate x (Actual hours - Standard hours)

2 x (32500 - 25000) = 2 x 7500 = 15000

3. b) Fixed Overhead Budget variance

=Actual Fixed Overhead - Budgeted Fixed Overhead

Actual fixed overhead= material variance x fixed Labour hours

12250 x 15 = 183750

Actual overhead Costs = 148000

fixed overhead efficiency variance = 183750 - 148000 = 35750

Standard Price of a Unit of Direct Material $3.50 Standard Quantity of Direct Material Per Unit 4 meters Actual Units Produced During the Period 20000