Sammy Corp manufactures helmets. Sammy usesa standard costing system with the fo

Question

Sammy Corp manufactures helmets. Sammy usesa standard costing system with the following standards: STANDARD Quantity Price Direct Materials--1 1000 pounds $12 per lb Direct Labor 2500 hours S20 per hour Variable OH $30 per DLH a. The actual amount of direct materials purchased and used last period was 900 pounds. The average price paid was $15.00 per pound. What is the overall Direct Material Variance? b.What is the Direct Materials Price Variance? c. What is the Direct Materials Quantity Variance? d. The actual direct labor costs last period were $25.00 per hour. Sammy assumed that by paying the workers more than the standard, the workers' higher efficiency would make up for the higher costs. Last period the Direct Labor Efficiency Variance was S14,000 (F). How many direct labor hours were actually used last period? e.What is the Direct Labor Wage Variance? f. What is the overall Direct Labor Variance? g. What was the budgeted amount of Variable Overhead ? h. The actual variable overhead costs were $70,000 What was the variable overhead spending variance?

Explanation / Answer

SP= STANDARD PRICE

SQ= STANDARD QUANTITY

AP= ACTUAL PRICE

AQ= ACTUAL QUANTITY

A) The total direct materials variance equals the difference between total actual cost of materials (AP x AQ) and the budgeted cost of materials, based on standard costs (SP x SQ):

Total direct materials variance = (SP x SQ) – (AP x AQ)

=(12*1000)-(900*15)

= 1500 (Adverse)

B) Direct material price variance occurs when the actual price paid for the material used become different from the Standard price.

Direct materials price variance = (SP – AP) x AQ

= (12-15) * 900

= 2700 ( Adverse)

C) Direct material quantity variance occurs if the standard quantity usage differs from the actual.

Direct materials quantity variance = SP x (SQ – AQ)

= 12* (1000-900)

= 1200 (Favourable)

D) Direct Labor Efficiency Variance is the measure of difference between the standard cost of actual number of direct labor hours utilized during a period and the standard hours of direct labor for the level of output achieved.

(Actual hours - Standard hours) x Standard rate = Labor efficiency variance

Or, (AH-2500)20= 14000 (According to the question)

Or, 20*AH = 14000+50000=64000

Or, Actual hours = 3200 hour.

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