The standard cost sheet for Chambers Company, which manufactures one product, fo

Question

The standard cost sheet for Chambers Company, which manufactures one product, follows: $ 75 100 85 Direct materials, 30 yards at $2.50 per yard Direct labor, 4 hours at $25 per hour Factory overhead applied at 85% of direct labor (variable costs $60; fixed costs S25) Variable selling and admin strative Fixed selling and administrative 75 51 386 Total unit costs Standards have been computed based on a master budget activity level of 29,900 direct labor-hours per month. Actual activity for the past month was as follows: Materials used Direct labor Total factory overhead 239,000 yards at $2.55 per yard 30,200 hours at $26.20 per hour $690,000 7,400 units Required: Prepare variance analyses for the variable and fixed costs. Materials are purchased as they are used. (Do not round intermediate calculations. Indicate the effect of each variance by selecting "F" for favorable, or "U" for unfavorable. If there is no effect, do not select either option.) Price variance Efficiency variance $42,500 t labor: Price variance Efficiency variance $15,000 Production volume variance

Explanation / Answer

(Standard unit price of direct material - Actual price per unit of direct material) *  actual quantity of direct material used

($2.50 per yard - $2.55 per yard) * 239,000 yards = 11,950 U

Explanation : Since standard unit price of direct material is less than actual price per unit of direct material, the resultant direct material price variance is unfavorable.

( Standard quantity allowed -  Actual quantity of direct material used) * Standard price per unit of direct material

Standard quantity allowed = 7,400 units * 30 yards per unit = 222,000 yards

Actual quantity of direct material used = 239,000 yards (given) ; Standard price per unit of direct material = $2.50

Direct Material Efficency Price Variance = ( 222,000 yards  - 239,000 yards ) * $2.50 = $42,500 U

Explanation : Since standard quantity allowed is less than actual quantity of direct material used, the resultant direct material effiency variance is unfavorable.

= ($25 per hour - $26.20 per hour) * 30,200 hours = $36,240 U

Explanation : Since standard direct labor rate is less than actual direct labor rate , the resultant direct labour price variance is unfavorable.

(Standard direct labor hours allowed -  Actual direct labor hours used) * Standard direct labor rate per hour

Standard direct labor hours allowed = 7,400 units *4 hours = 29,600 hours

Actual direct labor hours used = 30,200 hours (given) ;Standard direct labor rate per hour = $25 per hour

Direct Labour Efficency Variance = (29,600 hours - 30,200 hours) *  $25 per hour = $15,000 U

Explanation : Since standard direct labor hours allowed is less than actual direct labor hours used, the resultant direct labour effiency variance is unfavorable.

(Standard direct labor hours allowed - Actual direct labor hours used) *  Standard variable overhead rate

(29,600 hours - 30,200 hours) *  $60 per hour = $36,000 U.

Explanation : Since standard direct labor hours allowed is less than actual direct labor hours used, the resultant variable overhead effiency variance is unfavorable.

(Actual Activity level – Standard Activity level) * Fixed Overhead Application Rate

Standard Activity level = 29,900 hours / 4 hours = 7,475 units

Actual Activity level = 7,400 units (given)

Fixed Overhead Application Rate = $ 25 * 4 hours per unit = $100 per unit

Fixed Overhead Production Volume Variance = (7,400 units - 7,475 units) * $100 = $7,500 U

Explanation : Since actual activity level is less than standard activity level, the resultant fixed overhead production variance is unfavorable.

Note : Both variable overhead effiency variance & fixed overhead production variance measures variances at production level therefore selling & admin expenses are not considered

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