ACCT 23021 Lecture 16: 11.2- Materials Variances
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Buil Corporation manufactures a single product. The standard cost per unit of product is as follows.
Direct materialsâ2 pounds of plastic at $6 per pound $12
Direct laborâ2 hours at $13 per hour 26
Variable manufacturing overhead 7
Fixed manufacturing overhead 5
Total standard cost per unit $50
The master manufacturing overhead budget for the month based on normal productive capacity of 20,000 direct labor hours (10,000 units) shows total variable costs of $70,000 ($3.50 per labor hour) and total fixed costs of $50,000 ($2.50 per labor hour). Normal productive capacity is 20,000 direct labor hours. Overhead is applied on the basis of direct labor hours. Actual costs for November in producing 9,700 units were as follows.
Direct materials (20,000 pounds) $119,000
Direct labor (19,600 hours) 256,760
Variable overhead 68,800
Fixed overhead 50,000
Total manufacturing costs $494,560
The purchasing department normally buys the quantities of raw materials that are expected to be used in production each month. Raw materials inventories, therefore, can be ignored.
Instructions
(a) Compute all of the materials and labor variances.
(b) Compute the total overhead variance.
(a) Total Materials Variance:
| ( AQ x AP ) | - | ( SQ x SP ) | = | |
| - | = | |||
| - | = |
Materials Price Variance:
| ( AQ x AP ) | - | ( AQ x SP ) | = | |
| - | = | |||
| - | = |
Total Materials Variance:
| ( AQ x AP ) | - | ( SQ x SP ) | = | |
| - | = | |||
| - | = |
Total Labor Variance:
| ( AH x AR ) | - | ( SH x SR ) | = | |
| - | = | |||
| - | = |
*9,700 x 2
Labor Price Variance:
| ( AH x AR ) | - | ( SH x SR ) | = | |
| - | = | |||
| - | = |
Labor Quantity Variance:
| ( AH x SR ) | - | ( SH x SR ) | = | |
| - | = | |||
| - | = |
(b) Total Overhead Variance:
| Actual Overhead | - | Overhead Applied | = | |
| - | = | |||
| - | = |
| P11-2A Computevariances, and prepare income statement | ||||||||||||
| Ayala Corporation accumulatesthe following data relative to jobs started and finished during themonth of June 2017. | ||||||||||||
| Cost and Production Data | Actual | Standard | ||||||||||
| Raw materials unit cost | $2.30 | $2.10 | ||||||||||
| Raw materials units used | 11,000 | 10,000 | ||||||||||
| Direct labor payroll | $120,960 | $120,000 | ||||||||||
| Direct labor hours worked | 14,400 | 15,000 | ||||||||||
| Manufacturing overheadincurred | $189,500 | |||||||||||
| Manufacturing overheadapplied | $189,000 | |||||||||||
| Machine hours expected to beused at normal capacity | 42,500 | |||||||||||
| Budgeted fixed overhead forJune | $55,250 | |||||||||||
| Variable overhead rate permachine hour | $3.00 | |||||||||||
| Fixed overhead rate permachine hour | $1.30 | |||||||||||
| Overhead is applied on thebasis of standard machine hours. Three hours of machine timeare | ||||||||||||
| required for each directlabor hour. The jobs were sold for $400,000. Selling andadministrative | ||||||||||||
| expenses were $40,000. Assumethat the amount of raw materials purchased equaled the amount | ||||||||||||
| used. | ||||||||||||
| Instructions | ||||||||||||
| (a) Compute all of thevariances for (1) direct materials and (2) direct labor. | ||||||||||||
| (b) Compute the total overheadvariance. | ||||||||||||
| (c) Prepare an incomestatement for management. (Ignore income taxes.) | ||||||||||||
| NOTE: Enter a number in cellsrequesting a value; enter either a number or a formula in cellswith a "?" . | ||||||||||||
| (a)(1) | Total Materials Variance: | ||||||||||
| ( | AQ | X | AP | ) | minus | ( | SQ | X | SP) | ) | |
| ( | Value | X | Value | ) | minus | ( | Value | X | Value | ) | |
| = | ? | minus | ? | = | Value | ||||||
| Materials price variance: | |||||||||||
| ( | AQ | X | AP | ) | minus | ( | AQ | X | SP | ) | |
| ( | Value | X | Value | ) | minus | ( | Value | X | Value | ) | |
| = | ? | minus | ? | = | Value | ||||||
| Materials quantity variance: | |||||||||||
| ( | AQ | X | SP | ) | minus | ( | SQ | X | SP | ) | |
| ( | Value | X | Value | ) | minus | ( | Value | X | Value | ) | |
| = | ? | minus | ? | = | Value | ||||||
| (a)(2) | Total Labor Variance: | ||||||||||
| ( | AH | X | AR | ) | minus | ( | SH | X | SR | ) | |
| ( | Value | X | Value | ) | minus | ( | Value | X | Value | ) | |
| = | ? | minus | ? | = | Value | ||||||
| Labor Price variance: | |||||||||||
| ( | AH | X | AR | ) | minus | ( | AH | X | SR | ) | |
| ( | Value | X | Value | ) | minus | ( | Value | X | Value | ) | |
| = | ? | minus | ? | = | Value | ||||||
| Labor quantity variance: | |||||||||||
| ( | AH | X | SR | ) | minus | ( | SH | X | SR | ) | |
| ( | Value | X | Value | ) | minus | ( | Value | X | Value | ) | |
| = | ? | minus | ? | = | Value | ||||||
| (b) | Total Overhead Variance: | ||||||||||
| = | Actual | minus | Overhead | ||||||||
| Overhead | Applied | ||||||||||
| = | Value | minus | Value | = | Value | ||||||
| (c ) | AYALA CORPORATION | ||||||||||
| Income Statement | |||||||||||
| For the Month Ended June 30, 2017 | |||||||||||
| Sales revenue | Value | ||||||||||
| Cost of goods sold (at standard) | ? | ||||||||||
| Gross profit (at standard) | ? | ||||||||||
| Variances | |||||||||||
| Material price | Value | ||||||||||
| Materials quantity | Value | ||||||||||
| Labor price | Value | ||||||||||
| Labor quantity | Value | ||||||||||
| Overhead | Value | ||||||||||
| Totalvariance - favorable | ? | ||||||||||
| Gross profit (actual) | ? | ||||||||||
| Selling and administrative expenses | Value | ||||||||||
| Net income | ? | ||||||||||
The? Sudbury, South? Carolina, plant of Shannon Sports Companyhas the following standards for its soccer ball? production:
Standards: | 0.1 yard |
Material (leather) per soccer ball | $21 |
Material price per yard | 0.40 Hour |
Direct labor hours per soccer ball | $11 per hour |
Wage rate per direct labor hour | $12 per direct labor hour |
Variable support cost rate | |
Actual results for October: | |
| Used 13500 yards of raw material, purchased for $280,530.00. Paid for 8,200 direct labor hours at $11.30 per hour. Incurred $82,000 of variable support costs Manufactured 25,000 soccer balls |
Requirements
Determine the following variances for? October:
?(a) | Total direct material cost variance and indicate whether thevariance is favorable or unfavorable |
?(b) | Total direct labor cost variance |
?(c) | Total variable support cost variance |
?(d) | Direct material price variance |
?(e) | Direct material quantity variance |
?(f) | Direct labor rate variance |
?(g) | Direct labor efficiency variance |
?(h) | Variable support rate variance |
?(i) | Variable support efficiency variance |
AH? = Actual number of direct labor hours
AP? = Actual price per unit of materials
AQ? = Actual quantity of materials used
AR? = Actual wage rate
SH? = Number of direct labor hours allowed given the level ofoutput achieved
SP? = Estimated or standard price per unit of materials
SQ? = Standard quantity of materials allowed for the productionlevel achieved
SR? = Standard wage rate
