Question

The standard cost sheet for Chambers Company, which manufactures one product, follows: $ 100 100 Direct materials, 40 yards at $2.50 per yard Direct labor, 4 hours at $25 per hour Factory overhead applied at 70% of direct labor (variable costs - $50; fixed costs $20) Variable selling and administrative Fixed selling and administrative Total unit costs Standards have been computed based on a master budget activity level of 28,900 direct labor hours per month. Actual activity for the past month was as follows: Materials used Direct labor Total factory overhead Production 229,000 yards at $2.55 per yard 20.500 hours at $26.00 per hour $449,000 5.000 units Required: Prepare variance analyses for the variable and fixed costs. Materials are purchased as they are used. (Do not found 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.)

Answer 1

Material Price Variance = Actual pounds used x (Actual Price - Standard Price) Actual quantity used (yard) 229,000 Actual price per yard $2.55 Standard price per yard $2.50 Material Price Variance $11,450 [It is unfavorable as actual price is more than the standard price per yard] [229000 yards x ($2.55 - $2.50)] Material Quantity Variance = (Actual yard used - Standard yard required) x Standard Price per yard Actual quantity used (yard) 229,000 Standard yards required 200,000 15000 units x 40 yards] Standard price per yard $2.50 Material Efficiency Variance $72,500 [It is unfavorable as actual quantity used is more than the standard quantity required] [(229000 - 200000) yards x $2.50]

Labor Rate Variance = Actual pounds used x (Actual Rate - Standard Rate) Actual direct labor hours worked 20,500 Actual labor rate per DLH $26.00 Standard labor rate per DLH $25.00 Labor Rate Variance $20,500 [It is unfavorable as actual rate is more than the standard rate per hour] [20500 hours x ($26.00 - $25.00)] Labor Efficiency Variance = (Actual hours used - Standard hours required) x Standard Rate per hour Actual direct labor hours worked 20,500 Standard hours required 20,000 (5000 units x 4 hours] Standard labor rate per DLH $25.00 Labor Efficiency Variance $12,500 [It is unfavorable as actual hours used is more than the standard hours required] [(20500 - 20000) hours x $25.00]

Variable overhead Efficiency Variance = (Actual hours used - Standard hours required) x Standard Rate per hour Actual direct labor hours worked 20,500 Standard hours required 20,000 (5000 units x 4 hours] Standard Variable overhead rate per DLH $12.50 [$50 / 4 hours) Labor Efficiency Variance $6,250 [It is unfavorable as actual hours used is less than the standard hours required] [(20500 - 20000) hours x $12.50] Fixed overhead volume variance = Budgeted overhead cost as per flexible budget - Budgeted overhead cost as per master budget. Standard hours allowed 20,000 (5000 units x 4 hours] Standard fixed overhead rate per hour $5.00 ($20 / 4 hours] Standard fixed overhead cost allowed $100,000 (20000 hours x $5.00] Fixed overhead master budgeted $578,000 (28900 units x $20] Fixed overhead volume variance $478,000 [It is favorable because flexible budget is less than master budget overhead cost] ($578000 - $100000)