Requirement 2. Compute the cost variance and the efficiency variance for direct

Question

Requirement 2. Compute the cost variance and the efficiency variance for direct materials and for direct labor. For manufacturing overhead, compute the variable overhead cost, variable overhead efficiency, fixed overhead cost, and fixed overhead volume variances. Round to the nearest dollar Begin with the cost variances. Select the required formulas, compute the cost variances for direct materials and direct labor, and identify whether each variance is favorable (F Abbreviations used: AC = actual cost AQ = actual quantity: FOH-fixed overhead; SC-standard cost SQ-standard quantity.) or unfavorable (U). (Round your answers to the nearest whole dollar. Formula Variance Direct materials cost variance Direct labor cost variance

Explanation / Answer

Flexible Budget for 980 Recliners:

Calculation of Variances:

Direct Material Cost (Price) Variance = Actual Quantity * (Standard Price per unit - Actual Price per unit)

= 6143 * ( 8.90 - 8.70) = 1228.60 Favourable

Direct Material Efficiency Variance = Standard Price * (Standard Quantity - Actual Quantity)

= 8.90 ( 5880 - 6143) = -2340.70 Unfaourable

Labour Cost (Rate) Variance = Actual Labour Hours * ( Standard Rate - Actual Rate )

= 9600 * (9.20-9.30) = -960 Unfavourable

Labour Efficiency Variance = Standard Rate * ( Standard Labour Hours - Actual Labour Hours)

= 9.2 * ( 9800-9600) = 1840 Favourable

Variable Overhead Cost Variance = Actual Quantity * (Standard Rate per unit - Actual Rate per unit)

= 6143 * ( 5 - 6.4) = -8600.20 Unfavourable

Variable Overhead Efficiency Variance = Standard Rate * (Standard Quantity - Actual Quantity)

= 5 * ( 5880-6143) = -1315 Unfavourable

Fixed Overhead per unit as pet Static Budget = 60,000/ 1,000 Recliners = $ 60 per unit

Fixed Overhead Cost Variance = Fixed Ovehead Recovered - Actual Fixed Overhead

= (60*980) - 62000 = 58,800 -62,000 = -3200 Unfavourable

Fixed Overhead Volume Variance = Fixed Ovehead Recovered - Budgeted Fixed Overhead

= (60*980) - 60,000 = -1,200 Unfavourable

Sales (980 recliners * $ 495)          4,85,100 Variable Mfg. Cost - Direct Material (980 recliners *6 yds. *8.90)             52,332 - Direct Labour (980 recliners *10 Hrs *9.2)             90,160 - Variable Overhead (980 recliners *6 yds. * 5)             29,400 Fixed Mfg. Overhead             60,000 Total Cost of Goods Sold          2,31,892 Gross Profit          2,53,208

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