Sammy Corp manufactures helmets. Sammy uses a standard costing system with the f

Question

Sammy Corp manufactures helmets. Sammy uses a standard costing system with the following standards:

STANDARD--------------------Quantity ------------------------Price

Direct Materials -----------1000 pounds -------------------$12 per lb.

Direct Labor------------------ 2500 hours--------------------$20 per hour

Variable OH -----------------------------------------------------$30 per DLH

a. The actual amount of direct materials purchased and used last period was 900 pounds. The average price paid was $15.00 per pound. What is the overall Direct Material Variance ?

b.What is the Direct Materials Price Variance ?

c. What is the Direct Materials Quantity Variance ?

d. The actual direct labor costs last period were $25.00 per hour. Sammy assumed that by paying the workers more than the standard, the workers’ higher efficiency would make up for the higher costs. Last period the Direct Labor Efficiency Variance was $14,000 (F). How many direct labor hours were actually used last period ?

e.What is the Direct Labor Wage Variance ?

f. What is the overall Direct Labor Variance ?

g. What was the budgeted amount of Variable Overhead ?

h. The actual variable overhead costs were $70,000. What was the variable overhead spending variance ?

Explanation / Answer

Material Variances:

Step 1: Computation Table

                (1)                                          (2)                                          (3)

        SQ*SP                                     AQ*AP                                 AQ*SP

       1000*$12                                900*$15                               900*$12

       =$12,000                                 =$13,500                              =$10,800

Step 2: Variance Calculation:

Direct Material Variance                               : 1-2 : $12000-$13500 = $1500 Adverse

Direct Material Price Variance                    : 3-2: $10800-$13500 = $2700 Adverse

Direct Material Quantity Variance             : 1-3: $12000-$10800 = $1200 Favourable

Labor Variances:

Step 1: Computation Table

                (1)                                          (2)                                          (3)

        SH*SR                                     AH*AR                                  AH*SR

       2500*$20                                1800*$25                             1800*$20

       =$50,000                                 =$45,000                              =$36,000

Note:

Given Labor Efficiency Variance as $14,000 Favourable i.e, SH*SR – AH*SR =$14000 Favourable

$50000 – AH*$20= $14000

AH = 1800 Hours

Step 2: Variance Calculation:

Direct Labor Wage Variance        : 3-2 = $36000-$45000 = $9000 Adverse

Direct Labor Variance                     : 1-2 = $50000-$45000 = $5000 Favourable

Variable Overhead Variances:

Budgeted Variable amount of Overhead : 1800*30 = $54000

Variable Overhead Spending Variance : AH*SR – AVO : 1800*$30 - $70000 = $16,000 Adverse.

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