Computing Variances and Evaluating Performance Clean Sweep Company produces all-

ID: 2446788 • Letter: C

Question

Computing Variances and Evaluating Performance Clean Sweep Company produces all-vinyl mats. Each doormat calls for 0.5 meter of vinyl material; the material should cost $3 per meter. Standard direct labor hours and labor cost per doormat are 0.3 hour and $6 (0.3 hour × $20 per hour), respectively. Currently, the division's standard variable overhead rate is $1.50 per direct labor hour, and its standard fixed overhead rate is $0.80 per direct labor hour. In August, the division manufactured and sold 50,000 doormats. During the month, it used 25,200 meters of vinyl material; the total cost of the material was $73,080. The total actual overhead costs for August were $28,200, of which $18,200 was variable. The total number of direct labor hours worked was 10,800, and the factory payroll for direct labor for the month was $214,920. Budgeted fixed overhead for August was $9,280. Normal monthly capacity for the year was set at 58,000 doormats. 1. Compute for August the a. direct materials price variance $ b. direct materials quantity variance $ c. direct labor rate variance $ d. direct labor efficiency variance $ e. variable overhead spending variance $ f. variable overhead efficiency variance $ g. fixed overhead budget variance $ h. fixed overhead volume variance $

Explanation / Answer

Perticular

Standard

Actual

Direct Material

0.5 meter @$3 per meter

25,200 meter @ $73,080

i.e $2.9 per meter

Direct Labour

0.3 hour per meter @ $20 per hour

10,800 hour @ $214,920

i.e. $19.9 per hour

Variable overhead

$1.50 per direct labour hour

$18,200

i.e. $1.69 per labour hour

Fixed Overhead

$0.80 per direct labour hour

$10,000

i.e. $0.93 per labour hour

Budgeted Fixed Overhead = $9,280

Normal Capacity = 58,000 units

Actual Production = 50,000 units

= Actual Quantity ( Standard price – Actual Price)

= 25,200 (3 – 2.9)

= 2,520 Favourable

= Standard price (Standard Usage – Actual Usage)

= 3 (50000*0.5 – 25,200)

= 3 (25,000 – 25,200)

= 600 Unfavourable

= Actual Hour (Standard Rate – Actual Rate)

= 10,800 (20 – 19.9)

= 1,080 Favourable

= Standard Rate (Standard Hour – Actual Hour)

= 20 (50,000*0.3 – 10800)

= 20 (15000 – 10800)

= 84,000 Favourable

= Actual hours (Actual overhead rate – standard overhead rate)

= 10,800 (1.69 – 1.5)

= 2,052 Unfavourable

= Standard overhead rate (Actual hours – standard hours)

= 1.5 (10800 – 15000)

= 6300 Favourable

= Actual Fixed Overhead - Budgeted Fixed Overhead

= 10000 – 9280

= 720 Unfavourable

= Applied fixed overhead – Budgeted fixed overhead

= (0.8 * 10800) – 9280

= 8640 – 9280

= 640 Unfavourable