Silmon Corporation makes a product with the following standard costs: In June th

Question

Silmon Corporation makes a product with the following standard costs:

In June the company produced 4,300 units using 22,750 grams of the direct material and 2,590 direct labor-hours. During the month the company purchased 24,200 grams of the direct material at a price of $4.80 per gram. The actual direct labor rate was $12.60 per hour and the actual variable overhead rate was $1.90 per hour. The materials price variance is computed when materials are purchased. Variable overhead is applied on the basis of direct labor-hours.

Compute the following variances for raw materials, direct labor, and variable overhead, assuming that the price variance for materials is recognized at point of purchase: (Input all amounts as positive values. Do not round intermediate calculations. Leave no cells blank - be certain to enter "0" wherever required. Indicate the effect of each variance by selecting "F" for favorable, "U" for unfavorable, and "None" for no effect (i.e., zero variance). Omit the "$" sign in your response.)

   Standard Quantity
or Hours Standard Price
or Rate   Direct materials 5.0 grams $ 5.00 per gram   Direct labor 0.5 hours $ 12.00 per hour   Variable overhead 0.5 hours $ 2.00 per hour

Explanation / Answer

Material Price variance

= (standard price – actual price) x actual quantity of material purchased

= ($5 - $4.80) x 24200

= $4840 Favourable

Material Quantity Variance

= (standard quantity for actual production – actual quantity used) x standard price

= (4300 units x 5gm per unit – 22750 gms) x $5/gms

= (21500 gms – 22750 gms) x $5 / gm

= $6250 Unfavourable

Labour Rate Variance

= (Standard rate – actual rate) x actual direct labour hours used.

= ($12 / hr - $12.60/hr) x 2590 hrs

= $1554 Unfavourable

Labour Efficiency variance

=(standard labour hours required for actual production – actual labour hour used) x standard rate

=(0.5 hrs/ unit x 4300 units – 2590 hours) x $12/hr

= $5280 Unfavourable

In absence of information, following variances have been calculated for Variable overhead

Variable overhead spending variance

= (standard overhead rate – actual overhead rate) x actual hours worked

= ($2 / hr - $1.90/hr) x 2590 hours

= $259 Favourable

Variable overhead efficiency variance

=( standard hours required for actual production – actual hours used) x standard overhead rate

= (0.5 hrs/ unit x 4300 units – 2590 hours) x $2/hr

= (2150 hrs – 2590 hrs) x $2 / hr

= $880 Unfavourable

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