Question

Parrott Corporation produced 4,000 units of their product in the current period. All work must be shown - Total 24 points Each unit is budgeted (Standard Cost) as follows: Direct materials, 5 yards at $ 3.50 per yard Direct labor, 7 hours at $ 8.00 per hour Factory overhead, $ 27 per unit produced. Actual costs for the current period’s production for 4,000 units are as follows: Direct materials, 21,500 yards at $ 3.30 per yard Direct labor, 27,900 hours at $8.10 per hour Factory overhead, $ 107,500 Directions: Calculate each of the following variances and indicate if favorable or unfavorable. All work must be shown - Total 24 points Direct materials variance – overall Direct materials quantity variance Direct materials price variance Direct labor variance – overall Direct labor time variance Direct labor rate variance Factory overhead variance Total variance – overall

Answer 1

Solution:

Direct Material Cost Variance
Actual Cost					Standard cost for actual quantity					Standard Cost
AQ *	AP =				AQ *	SP =				SQ *	SP =
21500	$3.30	$70,950.00			21500	$3.50	$75,250.00			20000	$3.50	$70,000.00
			$4,300.00	Favorable				$5,250.00	Unfavorable
			Direct Material Price Variance					Direct Material Qty variance
Direct material price variance					$4,300.00	Favorable
Direct material quantity variance					$5,250.00	Unfavorable
Total direct material variance					$950.00	Unfavorable

Direct Labor Cost Variance
Actual Cost					Standard cost for actual quantity					Standard Cost
AH *	AR =				AH *	SR =				SH *	SR =
27900	$8.10	$225,990.00			27900	$8.00	$223,200.00			28000	$8.00	$224,000.00
			$2,790.00	Unfavorable				$800.00	Favorable
			Direct Labor rate Variance					Direct Labor Efficiency Variance
Direct Labor Rate variance					$2,790.00	Unfavorable
Direct Labor Efficiency variance					$800.00	Favorable
Total direct labor variance					$1,990.00	Unfavorable

Factory overhead variance overall = Fixed overhead applied - Actual overhead = (4000*$27) - $107,500 = $500 Favorable