At the beginning of 2012, Beal Company adopted the following standards: Normal v

Question

At the beginning of 2012, Beal Company adopted the following standards:

Normal volume per month is 40,000 direct labor hours, Beal's January 2012 budget was based on normal volume. During January, Beal produced 7,800 units,
with records indicating the following:

Required
For the month of January 2012, compute the following variances, indicating whether each is favorable or unfavorable:

1. Direct materials price variance, based on purchases
2. Direct materials usage variance
3. Direct labor rate variance
4. Direct labor efficiency variance
5. Factory overhead spending variance
6. Variable factory overhead efficiency variance
7. Factory overhead volume variance

I wanna know of a kind of detailed solving process from a tutor.

Direct material ( 3 pounds @ $2.50 per pound ) .............................$7.50
Direct labor ( 5 hours @ $7.50 per hour ) ......................................$37.50
Factory Overhead :
Variable ( $3.00 per direct labor hour ) ............................................$15.00
Fixed ( $ 4.00 per direct labor hour ) ...............................................$20.00
Standard cost per unit .....................................................................$80.00

Explanation / Answer

1) Direct material price variance = (Actual price-Standard price)*Actual quantity purchased = ($2.60-$2.50)*25000 = $      2,500 [U] 2) Direct materails usage variance = (Actual quantity used-Standard quantity)*Standard price = (23100-7800*3)*$2.50 = $          750 [F] 3) Direct labor rate variance = (Actual DL rate-Standard DL rate)*Actual DLH = ($7.30-$7.50)*40100 = $      8,020 [F] 4) Direct labor efficiency variance = (Actual DL hours-Standard DL hours for actual production)*Standard DL rate = (40100-7800*5)*$7.5 = $      8,250 [U] 5) Factory overhead spending variance = Actual overhead - Budgeted overhead = 300000-(40100*$3+40000*$4) = $    19,700 [U] Budgeted overhead for variable element should be based on actual hours. 6) Variable factory overhead efficiency variance = (Actual DLH - Standard DLH)*Standard VOH rate = (40100-7800*5)*$3 = $      3,300 [U] 7) Fixed overhead volume variance = Budgeted fixed overhead-Fixed overhead assigned = (40000*$4-7800*5*$4) = $      4,000 [U] Fixed overhead under standard costing will be assigned based on standard hours for actual production. Standard hours for actual production = 7800*5 = 39000 hours Hence, fixed overhead assigned = 39000*4 = $156,000 As only 39000 hours out of the 40000 hours budgeted has been used based on standard hours the resulting variance is Unfavorable, indicating the cost of unused capacity.

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