Barley Hopp, Inc., manufactures custom-ordered commemorative beer steins. Its st

Question

Barley Hopp, Inc., manufactures custom-ordered commemorative beer steins. Its standard cost information follows: Standard Quantity Standard Price (Rate) Standard Unit Cost Direct materials (clay) 1.60 lbs. $ 1.70 per lb. $ 2.72 Direct labor 1.60 hrs. $ 14.00 per hr. 22.40 Variable manufacturing overhead (based on direct labor hours) 1.60 hrs. $ 1.20 per hr. 1.92 Fixed manufacturing overhead ($312,500.00 ÷ 125,000.00 units) 2.50 Barley Hopp had the following actual results last year: Number of units produced and sold 130,000.00 Number of pounds of clay used 228,200.00 Cost of clay $ 365,120.00 Number of labor hours worked 175,000.00 Direct labor cost $ 2,975,000.00 Variable overhead cost $ 250,000.00 Fixed overhead cost $ 330,000.00 Required: 1. 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.) 2. 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.) 3. 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

Solution:

Working:

Standard Data

Standard Quantity

Standard Price

Standard Unit Cost

Direct Material (Clay)

1.60 lbs

$1.70

$2.72

Direct Labor

1.60 hrs

$14.00

$22.40

Variable Manufacturing Overheads

1.60 hrs

$1.20

$1.92

Fixed Manufacturing Overheads

($312,500.00 ÷ 125,000.00 units)

$2.50

Actual Data

Units

Rate

Amount

Units Produced & Sold

130,000

Number of Pounds of clay used

228,200

$1.60

$365,120

Number of labor hours worked

175,000

$17.00

$2,975,000

Variable overhead cost

175,000

$1.43

$250,000

Fixed overhead cost

$330,000

1)

Material price variance measures variance arises in the material cost due to difference in actual material purchase price from standard material price. The actual quantity purchased is used to calculate Material Price Variance. If actual quantity purchased is not given then quantity used can be taken.

Actual Material Quantity Purchased/Used Quantity = 228,200 pounds of clay

Material Standard Price Per Pound = $1.70

Standard Quantity for Actual Production of raw material = Actual Production x Standard Quantity per Unit = 130,000 x 1.60 lbs = 208,000 lbs

Material Price Variance = Actual Quantity Purchased (Standard Price – Actual Price) = 228,200 ($1.70 - $1.60) = $22,820 F

Material Quantity Variance = Standard Price (Standard Quantity for Actual Production – Actual Quantity used) = $1.70 (208,000 – 228,200) = $34,340 U

Material Spending Variance = Material Price Variance + Material Quantity Variance = $22,820 F + $34,340 F = $11,520 U

2)

Number of labor hours actually worked = 175,000 Hours

Standard labor hours for Actual Production = Actual Production x Standard Labor hours per unit = 130,000 Units x 1.60 hours per unit = 208,000 Hours

Labor Rate Variance = Actual Hours Worked (Standard Rate – Actual Rate) = 175,000 ($14 - $17) = $525,000 U

Labor Efficiency Variance = Standard Rate (Standard Hours for Actual Production – Actual Hours worked) = $14 (208,000 – 175,000) = $462,000 F

Labor Spending Variance = Labor Rate Variance + Labor Efficiency Variance = $525,000 U + $462,000 F = $63,000 U

3) Variable Overheads

Variable overhead rate Variance = Actual hours (Std. rate – Actual rate) = 175,000 x $1.20 - $250,000 = $210,000 - $250,000 = $40,000 U

Variable efficiency Variance = Std. Rate (Standard Hours for actual production – Actual hours) = $1.20 (208,000 – 175,000) = $39,600 F

Variable spending variances = Variable overhead rate Variance + Variable efficiency Variance = $40,000 U + $39,600 F = $400 U

Standard Data

Standard Quantity

Standard Price

Standard Unit Cost

Direct Material (Clay)

1.60 lbs

$1.70

$2.72

Direct Labor

1.60 hrs

$14.00

$22.40

Variable Manufacturing Overheads

1.60 hrs

$1.20

$1.92

Fixed Manufacturing Overheads

($312,500.00 ÷ 125,000.00 units)

$2.50

Actual Data

Units

Rate

Amount

Units Produced & Sold

130,000

Number of Pounds of clay used

228,200

$1.60

$365,120

Number of labor hours worked

175,000

$17.00

$2,975,000

Variable overhead cost

175,000

$1.43

$250,000

Fixed overhead cost

$330,000

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