Chapter 21: Q9E (page 972)
Refer to the information in Exercise 21-8 and compute the (1) direct materials price and (2) direct materials quantity variances. Indicate whether each variance is favorable or unfavorable.
The Direct material price variance isfavorable.
Direct material quantity variance is unfavorable.
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Comp Wiz sells computers. During May 2017, it sold 350 computers at a \(1,200 average price each. The May 2017 fixed budget included sales of 365 computers at an average price of \)1,100 each.
1. Compute the sales price variance and the sales volume variance for May 2017.
2. Interpret the findings.
The following information describes production activities of Mercer Manufacturing for the year.
Actual direct materials used 16,000 lbs. at \(4.05 per lb.
Actual direct labor used 5,545 hours for a total of \)105,355
Actual units produced 30,000
Budgeted standards for each unit produced are 0.50 pounds of direct material at \(4.00 per pound and 10 minutes of direct labor at \)20 per hour.
1. Compute the direct materials price and quantity variances and classify each as favorable or unfavorable.
2. Compute the direct labor rate and efficiency variances and classify each as favorable or unfavorable.
What is a price variance? What is a quantity variance?
Business Solutions’s second-quarter 2018 fixed budget performance report for its computer furniture operations follows. The \(156,000 budgeted expenses include \)108,000 in variable expenses for desks and \(18,000 in variable expenses for chairs, as well as \)30,000 fixed expenses. The actual expenses include \(31,000 fixed expenses. Prepare a flexible budget performance report that shows any variances between budgeted results and actual results. List fixed and variable expenses separately.
Fixed Budget | Actual Results | Variances | |
Desk sales (in units) | 144 | 150 | |
Chair sales (in units) | 72 | 80 | |
Desk sales | \)180,000 | \(186,000 | \)6,000 F |
Chair sales | 36,000 | 41,200 | 5,200 F |
Total expenses | 156,000 | 163,880 | 7,880 U |
Income from operations | \(60,000 | \)63,320 | $3,320 F |
Sedona Company set the following standard costs for one unit of its product for 2017.
Direct material (20 Ibs. @ \(2.50 per Ib.) \) 50
Direct labor (10 hrs. @ \(22.00 per hr.) 220
Factory variable overhead (10 hrs. @ \)4.00 per hr.) 40
Factory fixed overhead (10 hrs. @ \(1.60 per hr.) 16
Standard cost \)326
The \(5.60 (\)4.00 + \(1.60) total overhead rate per direct labor hour is based on an expected operating level equal to 75% of the factory’s capacity of 50,000 units per month. The following monthly flexible budget information is also available.
A | B | C | D |
| Operating Levels (% of capacity) | |||
Flexible Budget | 70% | 75% | 80% |
Budgeted output (units) | 35,000 | 37,500 | 40,000 |
Budgeted labor (standard hours) | 350,000 | 375,000 | 400,000 |
Budgeted overhead (dollars) | |||
Variable overhead | \)1,400,000 | \(1,500,000 | \)1,600,000 |
Fixed overhead | 600,000 | 600,000 | 600,000 |
Total overhead | \(2,000,000 | \)2,100,000 | \(2,200,000 |
During the current month, the company operated at 70% of capacity, employees worked 340,000 hours, and the following actual overhead costs were incurred.
Variable overhead costs \)1,375,000
Fixed overhead costs 628,600
Total overhead costs $2,003,600
1. Show how the company computed its predetermined overhead application rate per hour for total overhead, variable overhead, and fixed overhead.
2. Compute the total variable and total fixed overhead variances and classify each as favorable or unfavorable.
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