At the end of June the manager of the B.C. manufacturing plant was provided with
ID: 2521261 • Letter: A
Question
At the end of June the manager of the B.C. manufacturing plant was provided with the following variance analysis report:
The manager immediately called the production supervisor, demanding an explanation for the large unfavourable variance for the quarter. The production supervisor was puzzled. He thought the cost-cutting measures they had incorporated were beginning to work. He certainly wasn’t expecting such a large discrepancy.
The standard rates the plant was using with its normal costing system are summarized below.
Other relevant information:
QUESTION: Calculate the following production variances AND say for each one if it is Favourable, Unfavourable or Neither (SEE ATTACHED PHOTO):
Budget Actual Variance Favourable (F)/Unfavourable (U) Production in units 334,000 354,000 20,000 F Production costs: Direct material $1,079,789 $1,112,924 $(33,135) U Direct labour 835,000 858,480 (23,480) U Variable overhead costs 192,050 202,203 (10,153) U Fixed overhead costs 192,050 189,995 2,055 F Total production costs $2,298,889 $2,363,602 $(64,713) U Calculate the following production variances. Material price variance Material quantity variances Labour price variance Labour efficiency variance Variable overhead variance
Explanation / Answer
Answer
Actual DATA for
354000
units
Quantity (AQ)
Rate (AR)
Actual Cost
Direct Material
483880 kg
$ 2.30
$ 11,12,924.00
Direct labor
87600 hr
$ 9.80
$ 8,58,480.00
Variable Overhead
87600 hr
$ 2.31
$ 2,02,203.00
Standard DATA for
354000
units
Quantity (SQ)
Rate (SR)
Standard Cost
Direct Material
495600 kgs
$ 2.30
$ 11,39,880.00
Direct labor
88500 hrs
$ 10.00
$ 8,85,000.00
Variable Overhead
88500 hrs
$ 2.30
$ 2,03,550.00
Material Price Variance
(
Standard Rate
-
Actual Rate
)
x
Actual Quantity
(
$ 2.30
-
$ 2.30
)
x
483880
0
Variance
0
Favourable-F
Material Quantity Variance
(
Standard Quantity
-
Actual Quantity
)
x
Standard Rate
(
495600
-
483880
)
x
$ 2.30
26956
Variance
26956
Favourable-F
Material Spending Variance
(
Standard Cost
-
Actual Cost
)
(
$11,39,880.00
-
$11,12,924.00
)
26956
Variance
26956
Favourable-F
Labor Rate Variance
(
Standard Rate
-
Actual Rate
)
x
Actual Labor Hours
(
$ 10.00
-
$ 9.80
)
x
87600
17520
Variance
17520
Favourable-F
Labour Efficiency Variance
(
Standard Hours
-
Actual Hours
)
x
Standard Rate
(
88500
-
87600
)
x
$ 10.00
9000
Variance
9000
Favourable-F
Labor Spending Variance
(
Standard Cost
-
Actual Cost
)
(
$ 8,85,000.00
-
$ 8,58,480.00
)
26520
Variance
26520
Favourable-F
Variable Overhead Rate Variance
(
Standard Rate
-
Actual Rate
)
x
Actual Labor Hours
(
$ 2.30
-
$ 2.31
)
x
87600
-723
Variance
723
Unfavourable-U
Variable Overhead Efficiency Variance
(
Standard Hours
-
Actual Hours
)
x
Standard Rate
(
88500
-
87600
)
x
$ 2.30
2070
Variance
2070
Favourable-F
Variable Overhead Spending Variance
(
Standard Cost
-
Actual Cost
)
(
$ 2,03,550.00
-
$ 2,02,203.00
)
1347
Variance
1347
Favourable-F
Actual DATA for
354000
units
Quantity (AQ)
Rate (AR)
Actual Cost
Direct Material
483880 kg
$ 2.30
$ 11,12,924.00
Direct labor
87600 hr
$ 9.80
$ 8,58,480.00
Variable Overhead
87600 hr
$ 2.31
$ 2,02,203.00
Standard DATA for
354000
units
Quantity (SQ)
Rate (SR)
Standard Cost
Direct Material
495600 kgs
$ 2.30
$ 11,39,880.00
Direct labor
88500 hrs
$ 10.00
$ 8,85,000.00
Variable Overhead
88500 hrs
$ 2.30
$ 2,03,550.00
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