Question

SHOW ALL THE WORK IN GREAT DETAIL

The following is the standard cost card for Harper Inc's only product: Direct material, 4 oz. at $3.00/oz. Direct labour, 0.5 hours at $14.70/DLH Variable MOH, 0.5 hours at $20.00/DLH Fixed MOH, 0.5 hours at $28.00/DLH Standard cost per unit $12.00 7.35 10.00 14.00 $41.00 The company manufactured and sold 8,000 units of product during the year. A total of 20,000 oz. of material was purchased during the year at a total cost of $56,250. GH used 27,500 oz. of material to make the 7,000 units. The company worked 3,400 direct labour hours during the year at a cost of $15.00 per hour. Overhead cost is applied to products on the basis of direct labour hours. The denominator activity level (direct labour hours) was 3,000 hours. Budgeted fixed overhead costs as shown on the flexible budget were $84,000, while actual fixed overhead costs were $80,500. Actual variable overhead costs were $60,000 Required: a) Compute the direct materials price and quantity variances for the year b) Compute the direct labour rate and efficiency variances for the year c) Compute the variable overhead spending and efficiency variances for the year d) Compute the fixed overhead budget and volume variances for the year. e) Which variance should be reviewed first?

Answer 1

Please find below table useful to compute desired results: -

F F U F A B C D E 1 Particulars Rate Cost 2 Direct Material =B2*C2 Material Price Variance 3 Direct labour 0.5 14.7 =B3*C3 Material Usage Variance 4 Variable Manufacturing Overheads 20 =B4*C4 Labour rate Variance 5 Fixed Manufacturing overheads 0.5 28 =B5*C5 Labour Efficiency Variance 6 Standard Cost per Unit 141 Variable overhead Spending Variance 7 Manufactured and Sold(in Units) 8000 Variable overhead Efficiency Variance 8 Purchased Material 20000 =D8/B8 56250 Fixed overhead budget 9 Material Produced 7000 Fixed overhead volume variance 10 Material Used to produce 7000 units 27500 11 Actual direct labour 3400 15 =C11*B11 12 Denominator activity level 3000 13 Budgeted fixed overhead costs 84000 14 Actual Fixed overhead costs 80500 15 Actual Variable overhead costs 60000 =(C2-C8)*DS =(B7*B2-B8)*C2 =(C3-C11)*B11 =(B11-B7*B3)*C3 =B12*(D15/B12-C4) =(B12-B4*B7)*C4 =B7*D5-D14 =(B7*D6-D13 F

G | 10546.875 F 36000 F -1020 U -88207 A B C D 1 Particulars Rate Cost 2 Direct Material 12 Material Price Variance 3 Direct labour 14.7 7.35 Material Usage Variance 4 Variable Manufacturing Overheads 0.5 10 Labour rate Variance 5 Fixed Manufacturing overheads 0.5 28 14 Labour Efficiency Variance 6 Standard Cost per Unit 41 Variable overhead Spending Variance 7 Manufactured and Sold in Units) 8000 Variable overhead Efficiency Variance 8 Purchased Material 20000 2.8125 56250 Fixed overhead budget 9 Material Produced 7000 Fixed overhead volume variance 10 Material Used to produce 7000 units 27500 11 Actual direct labour 3400 15 51000 12 Denominator activity level 3000 13 Budgeted fixed overhead costs 84000 14 Actual Fixed overhead costs 80500 15 Actual Variable overhead costs 60000 -20000 F 31500 244000

Labour rate variance should be reviewed first.