Problem 10-15 (continued)
2. Summary of variances:
Material price variance ……………………..
$ 3,000
F
Material quantity variance …………………
8,400
U
Labor rate variance ………………………….
11,800
U
Labor efficiency variance …………………..
1,200
F
Variable overhead rate variance ………….
590
U
Variable overhead efficiency variance …..
300
F
Net variance …………………………………..
$16,290
U
Budgeted cost of goods sold at $12 per pool ………
$180,000
Add the net unfavorable variance, as above ……….
16,290
Actual cost of goods sold ……………………………….
$196,290
This $16,290 net unfavorable variance also accounts for the difference
between the budgeted net operating income and the actual net
operating income for the month.
Budgeted net operating income ……………………….
$36,000
Deduct the net unfavorable variance added to cost
of goods sold for the month …………………………
16,290
Net operating income ……………………………………
$19,710
3. The two most significant variances are the materials quantity variance
and the labor rate variance. Possible causes of the variances include:
Materials quantity variance:
Outdated standards, unskilled workers,
poorly adjusted machines,
carelessness, poorly trained workers,
inferior quality materials.
Labor rate variance:
Outdated standards, change in pay
scale, overtime pay.
Appendix 10A
Predetermined Overhead Rates and Overhead
Analysis in a Standard Costing System
Exercise 10A-1 (15 minutes)
1.
Fixed overhead
Fixed portion of the =
predetermined overhead rate Denominator level of activity
$250,000
= 25,000 DLHs
= $10.00 per DLH
2.
Budget Actual fixed Budgeted fixed
= –
variance overhead overhead
= $254,000 – $250,000
= $4,000 U
( )
Fixed portion of
Volume Denominator Standard hours
= the predetermined × –
variance hours allowed
overhead rate
= $10.00 per DLH × (25,000 DLHs – 26,000 DLHs)
= $10,000 F
