Balderson Co. has a budgeted monthly capacity of 20,000 direct labor hours with

Question

Balderson Co. has a budgeted monthly capacity of 20,000 direct labor hours with a standard production of 10,000 units at that capacity.

Standard cost cards reflect the following:

Materials..............................3 pounds @ $1.10 per pound.

Labor...................................$14.50 per hour

Overhead at normal capacity....................Fixed=$20,000, Variable=$ 5.00 per labor hour.

During the month, 30,000 pounds of material were purchased at a cost of $1.00 per pound. 9500 units were produced using 29,200 pounds of material. Labor hours required to complete the job were 19,500 at a total cost of $292,500. Actual factory overhead for the month was $113,000.

Required: Determine the following variances. Show all work for partial credit.

1. Material purchase price variance

2. Material price usage variance

3. Material quantity variance

4. Labor rate variance

5. Labor efficiency variance

6. Factory overhead using the 3-variance method.

Explanation / Answer

1. Material purchase price variance (Actual Price- Standard price)*Actual Quantity (1.00- 1.10)*30000 3000 F 2. Material price usage variance (Actual Quantity - Standard Quantity) x Standard Price (29200 - 30000)* 1.10 880 F 3. Material quantity variance (Actual Quantity - Standard Quantity for actual podn.) x Standard Price (29200 - (9500*3))* 1.10 770 (UF) 4. Labor rate variance (Actual Rate- Std. Rate)*Actual Hrs. ((292500/19500)- 14.50)*19500 9750 UF 5. Labor efficiency variance (Std. Hrs. For actual production-Actual Hrs.)*Std.Rate ((9500*2)-19500)*14.50 7250 UF 6. Factory overhead using the 3-variance method. Spending Variance Actual FOH 113000 Estimated FOH for actual capacity Fixed 20000 Variable 5*19500 97500 117500 4500 F Idle Capacity Variance Estimated FOH for actual capacity 117500 Applied FOH 6*19500 117000 500 UF Efficiency Variance Applied FOH 117000 FOH charged to prodn. 113000 4000 UF

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