During the week ended May 6, the following activity took place: 4,360 machine hours were worked. 22,800 lb of raw material were purchased for inventory at a total cost of $174,420. 3,800 cases of finished product were produced. 22,580 lb of raw material were used. 13,440 labor hours were worked at an average rate of $16.25 per hour. $23,108 actual variable overhead costs were incurred. Required: Calculate each of the following variances and provide plausible explanations for the results: a. Price variance for raw materials purchased. b. Raw materials usage variance. c. Direct labor rate variance. d. Direct labor efficiency variance. e. Variable overhead spending variance. f. Variable overhead efficiency variance.

Question

Business

Larry Horton

23 August, 17:13

During the week ended May 6, the following activity took place: 4,360 machine hours were worked. 22,800 lb of raw material were purchased for inventory at a total cost of $174,420. 3,800 cases of finished product were produced. 22,580 lb of raw material were used. 13,440 labor hours were worked at an average rate of $16.25 per hour. $23,108 actual variable overhead costs were incurred. Required: Calculate each of the following variances and provide plausible explanations for the results: a. Price variance for raw materials purchased. b. Raw materials usage variance. c. Direct labor rate variance. d. Direct labor efficiency variance. e. Variable overhead spending variance. f. Variable overhead efficiency variance.

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Answers (2)

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Whiskey · Answer 1

a) Material price variance = (7.5*22800-174420) = 3420 U

b) Material quantity variance = (3800*6-22580) * 7.5 = 1650 F

c) Labor rate variance = (16-16.25) * 13440 = 3360 U

d) Labor efficiency variance = (3800*3.6-13440) * 16 = 3840 F

e) Variable overhead spending variance = (5.5*4360-23108) = 872 F

f) Variable overhead efficiency variance = (4560-4360) * 5.5 = 1100 F

Karissa Acevedo · Answer 2

3420 this was unfavorable for the company 1650 this was favorable for the company 3360 this was unfavorable to the company 3840 this was favorable 872 this was favorable to the company 1100 this was favorable to the company

Explanation:

A) price variance for raw materials

= (unit cost of raw material * quantity of raw materials purchased - total cost of raw materials)

= (7.5 * 22800 - 174420)

= 3420

B) Raw materials usage variance

= (amount of finished products * direct materials per unit cost - amount of raw materials used) * unit cost

= (3800 * 6 - 22580) * 7.5 = 1650

C) direct labor rate variance

= (direct labor cost per hour * average rate of labor per hour) * number of labor hours

= 16 * 16.25 * 13440 = 3360

D) direct labor efficiency variance

= (cases of finished product * direct labor hours - labor hours worked) * direct labor cost per hour

= (3800 * 3.6 - 13440) * 16 = 3840

E) variable overhead spending variance

= (variable overhead cost per hour * machine hours worked - total actual variable overhead costs)

= (5.5 * 4360 - 23108) = 872

F) variable overhead efficiency variance

= (4560 - 4360) * variable overhead cost per hour

= (4560 - machine hours worked) * 5.5 = 1100