Averill Corporation manufactures windmills made of fabric using a standard costi

Question

Averill Corporation manufactures windmills made of fabric using a standard costing system. Averill allocates overhead based on the number of direct labor hours. The following are the company's cost and standards data:

Calculate direct material variances. Enter as a positive if favorable and negative if unfavorable.

a. Direct material price variance:

b. Direct material quantity variance:

2. Calculate direct labor variances. FOR 3a ONLY, ENTER AS A NEGATIVE IF FAVORABLE AND POSITIVE IF UNFAVORABLE. For 3b, ENTER AS A POSITIVE IF FAVORABLE AND NEGATIVE IF UNFAVORABLE.

a. Direct labor rate variance:

b. Direct labor efficiency variance:

3. Calculate variable manufacturing overhead variances. Enter as a positive if favorable and negative if unfavorable.

a. Variable MOH rate variance:

b. Variable MOH efficiency variance:

4. Calculate fixed manufacturing overhead variances. Enter as a positive if favorable and negative if unfavorable.

a. Fixed overhead budget variance:

b. Fixed overhead volume variance:

Standards: Direct material 18.0 yards per windmill at $12.60 per yard Direct labor 5.0 hours per windmill at $11.20 per hour Variable MOH standard rate $5.00 per direct labor hour Predetermined fixed MOH standard rate $10.40 per direct labor hour Total budgeted fixed MOH cost $81,100

Explanation / Answer

Solution:

1)

Calculate Direct Material Variance

a)

Direct Material Price Variance = Actual Quantity Purchased (Standard Price – Actual Price)

= (Actual Quantity Purchased x Standard Price) – (Actual Quantity Purchased x Actual Price)

= (43,420 x $12.60) - $547,690

= $547,092 - $547,690 = $598 Unfavorable

b)

Direct Material Quantity Variance = Standard Cost (Standard Quantity for Actual Output – Actual Quantity)

Standard Quantity for Actual Output = Actual Production x Standard Quantity needed per unit = 2,050 x 18 = 36,900 Yards

Direct Material Quantity Variance = $12.60 (36,900 – 38,100) = $15,120 Unfavorable

2)

Calculate Direct Labor Variance

a)

Direct Labor Rate Variance = Actual Hours (Standard Rate –Actual Rate) or

= (Actual Hours x Standard Rate) – (Actual Hours x Actual Rate)

= (8,240 x $11.20) – $92,636

= $92,288 - $92,636 = $348 Unfavorable

b)

Direct Labor Efficiency Variance = Standard Rate (Standard Hours for actual production – Actual Hours)

Standard Hours for actual production = 2,050 x 5 = 10,250 Hours

= $11.20 (10,250 – 8,240)

= $22,512 favorable

For Part 3 & 4 --- please ask separate question

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