Barley Hopp, Inc., manufactures custom-ordered commemorative beer steins. Its st
ID: 2450439 • Letter: B
Question
Barley Hopp, Inc., manufactures custom-ordered commemorative beer steins. Its standard cost information follows: Barley Hopp had the following actual results last year: Calculate the direct materials price, quantity, and total spending variances for Barley Hopp. (Do not round your intermediate calculations. Indicate the effect of each variance by selecting "F" for favorable and "U" for unfavorable.) Calculate the direct labor rate, efficiency, and total spending variances for Barley Hopp. (Do not round your intermediate calculations. Indicate the effect of each variance by selecting "F" for favorable and "U" for unfavorable.) Calculate the variable overhead rate, efficiency, and total spending variances for Barley Hopp. (Do not round your intermediate calculations. Indicate the effect of each variance by selecting "F" for favorable/Overapplied and "U" for unfavorable/underapplied.)Explanation / Answer
It is calculated using the formula
Direct Materials Price Variance = (standard price – actual price)
First we need to find out actual price of the direct material
Number of units produced 150,000
Number of pounds of clay used 268,200
For each unit amount of pounds used is 268,200/150,000 = 1.788lbs.
Cost of Clay $ 455,940
Cost of one pound of clay is $455,940 / 268,200 = $1.70
Hence actual cost for one unit of product is 1.788 * $1.70 = $3.0396
Standard price is $3.06. So Direct material price variance is
$3.06 - $ 3.0396 = $0.0204. As this is a positive value, the Direct Materials price variance is Favorable.
Direct Materials Quantity Variance is the difference between standard quantity and actual quantity multiplied by standard price. It is calculated using the formula.
Direct Material Quantity Variance = (Standard Quantity – Actual Quantity) * Standard Price.
We have to find standard quantity required for actual units produced.
Standard Quantity for each unit is 1.70lbs
Actual units produced are 150,000
So Standard Quantity required will be 150,000 * 1.70 = 255,000lbs
We have standard price at $ 3.06
Actual pounds used is 268,200
So Direct Material Quantity variance is
(255,000 – 268,200) * 3.06 = - $40,392
As it is negative, Direct Materials quantity is unfavorable.
Direct Material Total Spending Variance is calculated by multiplying Standard price variance with the actual quantity of Direct Materials
We have above Standard price variance as $0.0204. Hence the spending variance is
$0.0204 * 268,200 = $5,471.28 which is favorable
To Summarize,
Direct Materials Price Variance
$0.0204
F
Direct Materials Quantity Variance
-$40,392
U
Direct Materials Spending Variance
$5,471.28
F
2. Direct Labor Rate Variance is the difference in the price between standard rate and actual rate
It is calculated using the formula
Direct Labor Rate Variance = (standard rate – actual rate)
First we need to find out actual rate of the direct labor
Number of units produced 150,000
Number of labor hours worked 195,000
For each unit number of labor hours worked is 195,000/150,000 = 1.30hrs.
Direct Labor Cost $2,827,500
Labor Cost per hour is $2,827,500/ 195,000 = $14.50
Hence actual rate for one unit of product is 1.30 * $14.50 = $18.85
Standard rate is $18.70. So Direct labor rate variance is
$18.70 - $ 18.85 =- $0.15. As this is a negative value, the Direct Labor rate variance is unfavorable.
Direct Labor Efficiency Variance is the difference between standard hours and actual hours multiplied by standard rate. It is calculated using the formula.
Direct Labor Efficiency Variance = (Standard Hours – Actual Hours) * Standard rate.
We have to find standard hours required for actual units produced.
Standard hours for each unit is 1.70hrs
Actual units produced are 150,000
So Standard hours required will be 150,000 * 1.70 = 255,000hrs
We have standard rate at $ 18.70
Actual hours used is 195,000
So Direct Labor Efficiency variance is
(255,000 – 195,000) *18.70= $1, 122,000
As it is positive, Direct Labor Efficiency is favorable.
Direct Labor Spending Variance is calculated by multiplying Standard rate variance with the actual quantity of Direct Labor hours
We have above Standard price variance as - $0.15. Hence the spending variance is
-$0.15 * 195,000 = -$29,250 which is unfavorable
To Summarize,
Direct Labor Rate Variance
-$0.15
U
Direct Labor Efficiency Variance
$1,122,000
F
Direct Labor Spending Variance
-$29,250
U
3. Variable Overhead Rate Variance is the difference in the price between standard rate and actual rate
It is calculated using the formula
Variable Overhead Rate Variance = (standard rate – actual rate)
First we need to find out actual rate of Variable Overhead
Number of units produced 150,000
Number of labor hours worked 195,000
For each unit number of labor hours worked is 195,000/150,000 = 1.30hrs. (Note: It is given that Variable manufacturing overhead are based on the Direct Labor hours)
Variable Overhead Cost $290,000
Variable Overhead Cost per hour is $290,000 / 195,000 = $1.487179487179487
Hence actual rate for one unit of product is 1.30 * $1.487179487179487= $1.933333333333333
Standard rate is $1.87. So Overhead rate variance is
$1.87 - $1.933333333333333 =- $0.06333333333333. As this is a negative value, the Variable Overhead rate variance is unfavorable.
Variable Overhead Efficiency Variance is the difference between standard hours and actual hours multiplied by standard rate. It is calculated using the formula.
Variable Overhead Efficiency Variance = (Standard Hours – Actual Hours) * Standard rate.
We have to find standard hours required for actual units produced.
Standard hours for each unit is 1.70hrs
Actual units produced are 150,000
So Standard hours required will be 150,000 * 1.70 = 255,000hrs
We have standard rate at $ 1.87
Actual hours used is 195,000
So Variable Overhead Efficiency variance is
(255,000 – 195,000) *1.87= $112,200
As it is positive, Variable Overhead Efficiency is favorable.
Variable Overhead Spending Variance is calculated by multiplying Standard rate variance with the actual quantity of Direct Labor hours
We have above Standard price variance as - $0.06333333333333. Hence the spending variance is
- $0.06333333333333 * 195,000 = -$12,350 which is unfavorable
To Summarize,
Variable Overhead Rate Variance
- $0.06333333333333
U
Variable Overhead Efficiency Variance
$112,200
F
Variable Overhead Spending Variance
-$12,350
U
Direct Materials Price Variance
$0.0204
F
Direct Materials Quantity Variance
-$40,392
U
Direct Materials Spending Variance
$5,471.28
F
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