Question

The roofing company manufactures shingles. Standard Cost Sheet per shingle 1.5 pounds $0.07 per pound direct labor Direct materials Asphalt 0.01 hour $11 per hour Direct labor Variable direct labor Manufacturing $2 per hour 0.01 hour overhead Fixed direct labor Manufacturing 0.01 hour $10 per hour overhead Total standard cost per shingle $60,000 600,000 Units 6000 direct labor hours Budgeted fixed manufacturing overhead for the period is Budgeted units to be produced Standard fixed manufacturing overhead based on expected capacity of The following information is available regarding the company's actual operations for the period. 530,000 Shingles produced Materials purchased: Asphalt 9 $0.09 per pound 755,000 pounds 0 Materials used: 750,000 pounds 5,100 hours Asphalt Direct labor: $13.00 per hour Manufacturing overhead incurred Variable $11,322 26 $2.22 VOH rate per direct labor hour $59,700 Fixed 28 Required: Make sure you do not forget to label each variance U or F. You need to use cell references for your calculations 1. Calculate the direct materials price and quantity variance. Material price variance should be based on material purchased, since you want to isolate the variance as soon as possible. Material Quantity variance should be based on materials used, since this is monitoring the production efficiency Material purchase price variance Material Quantity variance 1 2. Calculate the direct labor rate and efficiency variances Labor rate variance Labor Efficiency variance 3. Variable manufacturing overhead spending and efficiency variances Variable overhead spending variance Variable overhead efficiency variance 4. Fixed manufacturing overhead budget variance. Fixed Manufacturing overhead budget variance 5. Pick out the two variances that you computed above that you think should be further investigated. Explain why you picked these 2 variances and what might be the possible cause of the variances.

Answer 1

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Summary of Answer
Material (Answer 1)
Material price variance	15,100	Unfavorable
Material quantity variance	3,150	Favorable
Labor (Answer 2)
Labor rate variance	10,200	Unfavorable
Labor efficiency variance	2,200	Favorable
Variable Overhead (Answer 3)
Variable overhead spending variance	1,122	Unfavorable
Variable overhead efficiency variance	400	Favorable
Fixed overhead (Answer 4)
Fixed Overhead Budget Variance	300	Favorable

	Minus sign indicate Favorable variance.
	Measure	Pound
	Standard price per Pound	$            0.07
	Actual price per Pound	$            0.09
530000*1.5	Standard quantity in Pounds	795000
	Actual quantity purchased in Pounds	755000
	Actual quantity used in Pounds	750000
	Actual price per Pound	0.09
Less	Standard price per Pound	-0.07
	Difference	0.02
Multiply	Actual quantity purchased in Pounds	755000
	Material price variance	$        15,100
	Indicate	Unfavorable
	Actual quantity used in Pounds	750000
Less	Standard quantity in Pounds	-795000
	Difference	-45000
Multiply	Standard price per Pound	0.07
	Material quantity variance	$        (3,150)
	Indicate	Favorable

	Minus sign indicate Favorable variance.
	Measure	Hour
	Standard rate per Hour	$            11.00
	Actual rate per Hour	$            13.00
530000*0.01	Standard labor Hours	5300
	Actual labor Hours	5100
	Actual rate per Hour	13.00
Less	Standard rate per Hour	-11.00
	Difference	2.00
Multiply	Actual labor Hours	5100
	Labor rate variance	$          10,200
	Indicate	Unfavorable
	Actual labor Hours	5100
Less	Standard labor Hours	-5300
	Difference	-200
Multiply	Standard rate per Hour	11.00
	Labor efficiency variance	$          (2,200)
	Indicate	Favorable

	Minus sign indicate Favorable variance.
	Measure	Hour
	Standard variable overhead rate per Hour	$                2.00
	Actual variable overhead rate per Hour	$                2.22
530000*0.01	Standard Hours	5300
	Actual Hours	5100
	Actual variable overhead rate per Hour	2.22
Less	Standard variable overhead rate per Hour	-2.00
	Difference	0.22
Multiply	Actual Hours	5100
	Variable overhead spending variance	$              1,122
	Indicate	Unfavorable
	Actual Hours	5100
Less	Standard Hours	-5300
	Difference	-200
Multiply	Standard variable overhead rate per Hour	2.00
	Variable overhead efficiency variance	$               (400)
	Indicate	Favorable

Minus sign indicate Favorable variance.
Budgeted Fixed Overheads	$                60,000
Actual Fixed Overheads	$                59,700
Budgeted units	600,000
Actual units	530,000
Overhead rate =( Budgeted Fixed Overheads / Budgeted units)
Applied Fixed Overhead = (Budgeted Fixed Overhead Rate * Actual units)
Budgeted Fixed Overhead Rate (60000/600000)	$                     0.10
Budgeted Fixed Overheads	60000
Less: Applied Fixed Overhead (0.1*530000)	-53000
Fixed Overhead Volume Variance	$                  7,000
Indicate	Unfavorable
Actual Fixed Overheads	59700
Less: Budgeted Fixed Overheads	-60000
Fixed Overhead Budget Variance	$                    (300)
Indicate	Favorable