Accounting Chapter 21 Compute the direct materials price and quantity variances

121

Fixed overhead:

Actual fixed overhead (given) $552,000

Budgeted fixed overhead (given) 560,000

Fixed overhead spending variance……………… $ 8,000 F

Budgeted fixed overhead $560,000

SH ∗ SR 60,000 hrs. ∗ $7/hr. 420,000

Fixed overhead volume variance………………… $140,000 U

Difficulty: 3 Hard

Topic: Computing Materials and Labor Variances; Computing Overhead Cost Variances

Learning Objective: 21-P3 Compute materials and labor variances.; 23-P4 Compute overhead

controllable and volume variances.

Bloom’s: Apply

AACSB/Accessibility: Analytical Thinking / Keyboard Navigation

AICPA: BB Resource Management; FN Measurement

122

191) Beluga Corp. has developed standard costs based on a predicted operating level of 352,000

units of production, which is 80% of capacity. Variable overhead is $281,600 at this level of

activity, or $0.80 per unit. Fixed overhead is $440,000. The standard costs per unit are:

Direct materials (0.5 lbs. @ $1/1b.) ……

$0.50 per unit

Direct labor (1 hour @ $10/hour) ……….

$10.00 per unit

Overhead (1 hour @ $2.05/hour) ………

$2.05 per unit

Beluga actually produced 330,000 units at 75% of capacity and actual costs for the period were:

Direct materials (162,000 lbs.) ……….

$ 170,100

Direct labor (329,500 hours) ………….

$3,360,900

Fixed overhead …………………………

$ 438,000

Variable overhead …………………….

$ 262,000

Calculate the following variances and indicate whether each variance is favorable or

unfavorable:

(1) Direct labor efficiency variance: $________

(2) Direct materials price variance: $________

(3) Controllable overhead variance: $________

124

192) The following information comes from the records of Barney Co. for the current period.

a. Compute the direct materials price and quantity variances, direct labor rate and efficiency

variances and state whether the variance is favorable or unfavorable.

b. Prepare the journal entries to charge direct materials and direct labor costs to work in process

and the materials and labor variances to their proper accounts.

Actual costs and quantities:

Direct materials used …………………

37,000 feet @ $6.20 per foot

Direct labor hours used ………………

50,660 hours

Direct labor rate per hour …………….

$16.50

25,000 units were produced during the period.

Standard costs and quantities per unit:

Direct materials ………………………

1.5 ft. @ $6.10 per ft.

Direct labor ……………………………

2 hours @ $17 per hour

193) The following information comes from the flexible budget performance report of Jackal

Corp. for the current period. Prepare the journal entries to charge direct materials and direct labor

costs to work in process and the materials and labor variances to their proper accounts.

Direct materials actual cost…………………………

$237,400

Direct materials standard cost ……………………

$238,750

Materials price variance………………………….

$ 11,700 U

Materials quantity variance…………………………

$ 13,050 F

Work in Process Inventory

Direct Material Price Variance

127

194) The following information comes from the records of Magno Co. for the current period.

a. Compute the overhead controllable and volume variances. In each case, state whether the

variance is favorable or unfavorable.

b. Prepare the journal entries to charge overhead costs to work in process and the overhead

variances to their proper accounts.

Actual costs and quantities:

Direct materials used …………………………

38,000 feet @ $6.20 per foot

Direct labor hours used ………………………

50,660 hours

Direct labor rate per hour …………………….

$16

Factory overhead …………………………….

$211,600

25,000 units were produced during the period.

Standard costs and quantities per unit:

Direct materials ……………………………….

1.5 ft. @ $6.10 per ft.

Direct labor ……………………………………

2 hours @ $17 per hour

Factory overhead (based on budgeted production of 24,500 units)

Variable overhead $2.25/direct labor hour

Fixed overhead $1.95/direct labor hour

195) If Mercury Company’s actual overhead incurred during a period was $32,700 and the

company reported a favorable overhead controllable variance of $1,200 and an unfavorable

overhead volume variance of $900, how much standard overhead cost was assigned to the

products produced during the period?

196) A company’s flexible budget for 36,000 units of production showed variable overhead costs

of $54,000 and fixed overhead costs of $50,000. The company actually incurred total overhead

costs of $95,300 while operating at a volume of 32,000 units. What is the controllable variance?

197) During November, Glime Company allocated overhead to products at the rate of $26.00 per

direct labor hour. This figure was based on 80% of capacity or 1,600 direct labor hours.

However, Glime Company operated at only 70% of capacity, or 1,400 direct labor hours.

Budgeted overhead at 70% of capacity is $38,900, and overhead actually incurred was $38,000.

What is the company’s volume variance for November? (Indicate whether the variance is

favorable or unfavorable)

198) Selected information from Richards Company’s flexible budget is presented below:

Operating Levels

80%

90%

100%

Budgeted production in units

4,800

5,400

6,000

Budgeted labor (standard hours)

9,600

10,800

12,000

Budgeted overhead:

Variable overhead

$86,400

$97,200

$108,000

Fixed overhead

63,600

Richards Company applies overhead to production at a rate of $31.25 per unit based on a normal

operating level of 80% of capacity. For the current period, Richards Company produced 5,400

units and incurred $62,000 of fixed overhead costs and $96,000 of variable overhead costs. The

company used 11,000 labor hours to produce the 5,400 units. Calculate the variable overhead

spending and efficiency variances, and the fixed overhead spending and volume variances.

Indicate whether each variance is favorable or unfavorable.

Actual variable overhead

99,000

Variable overhead spending variance

$99,000

Variable overhead efficiency variance

$ 1,800

Actual fixed overhead

$62,000

Budgeted fixed overhead

Fixed overhead spending variance

$ 1,600

Budgeted fixed overhead

$63,600

Fixed overhead volume variance

$ 7,950

199) Hatter, Inc. allocates fixed overhead at a rate of $17 per direct labor hour. This amount is

based on 90% of capacity or 3,600 direct labor hours for 6,000 units. During July, Hatter

produced 5,500 units. Budgeted fixed overhead is $66,000, and overhead incurred was $67,000.

Required: Determine the volume variance for July.

132

200) Gleason Company has developed the following standard cost data based on 60,000 direct

labor hours, which is 75% of capacity. Fixed overhead is $360,000 and variable overhead is

$180,000 at this level of activity.

Per Unit

Direct material (3 lbs. @ $2.00/1b.) …………

$ 6.00

Direct labor (0.5 hrs. @ $8.00/hr. ) ………….

4.00

Variable overhead (0.5 hrs. @ $3.00/hr.) ……

1.50

Fixed overhead (0.5 hrs. @ $6.00/hr.) ………

3.00

Total standard cost ……………………………

$14.50

During the current period, the company operated at 80% of capacity and produced 128,000 units.

Actual costs were:

Direct material (380,000 lbs.) …………….

$779,000

Direct labor (63,000 hrs.) ………………….

507,150

Fixed overhead …………….………………

365,000

Variable overhead …………………………

220,000

Calculate the variable overhead spending and efficiency variance and the fixed overhead

spending and volume variances. Indicate whether each is favorable or unfavorable.