Chapter 23 - Evaluating Variances from Standard Costs

The standard costs and actual costs for factory overhead for the manufacture of 2,500 units of actual production are as follows: Standard Costs Fixed overhead (based on 10,000 hours)3 hours per unit @ $0.80 per hourVariable overhead3 hours per unit @ $2.00 per hour Actual Costs Total variable cost, $18,000 Total fixed cost, $8,000 ​ ​ The amount of the variable factory overhead controllable variance is

$3,000 Unfavorable Variance Rationale: Variable Factory Overhead Controllable Variance = Actual Variable Factory Overhead - Budgeted Variable Factory Overhead = $18,000 - ($2.00 × 3 hours per unit × 2,500 units) = $18,000 - $15,000 = $3,000 Unfavorable Variance

​The following data relate to direct materials costs for February: ​ ​Materials cost per yard: standard, $2.00; actual, $2.10 Standard yards per unit: standard, 4.5 yards; actual, 4.75 yards Units of production: 9,500 ​ Calculate the total direct materials cost variance.

$9,262.50 Unfavorable Variance Rationale: Direct Materials Cost Variance = Direct Materials Price Variance + Direct Materials Quantity Variance Direct Materials Price Variance = (Actual Price - Standard Price) × Actual Quantity Actual quantity = Standard yards per unit × Units of production = 4.5 yards × 9,500 units = 45,125 yards​ Direct materials price variance = ($2.10 - $2.00) × 45,125 yards = $.10 × 45,125 yards = $4,512.50 Unfavorable Variance Direct Materials Quantity Variance = (Actual Quantity - Standard Quantity) × Standard Price Standard quantity = Actual production × Standard material quantity per unit = 9,500 units × 4.5 yards = 42,750 yards Direct materials quantity variance = (45,125 yards - 42,750 yards) × $2.00 = $4,750 Unfavorable Variance Therefore, Direct materials cost variance = $4,512.50 + $4,750 = $9,262.50 Unfavorable Variance

The formula to compute the direct material quantity variance is to calculate the difference between

(Actual quantity × Standard price) - Standard costs

The following data relate to direct labor costs for the current period: Standard costs 36,000 hours at $22.00 Actual costs 35,000 hours at $23.00 What is the direct labor time variance?

-$22,000 Favorable Variance Rationale: Direct Labor Time Variance = (Actual Direct Labor Hours - Standard Direct Labor Hours) × Standard Rate per Hour = (35,000 hours - 36,000 hours) × $22.00 = -1,000 hours × $22.00 = -$22,000 Favorable Variance

The total manufacturing cost variance is

the difference between actual costs and standard costs for units produced

The following data relate to direct labor costs for the current period: Standard costs 6,000 hours at $12.00Actual costs 7,500 hours at $11.40 ​ What is the direct labor rate variance?

-$4,500 Favorable Variance Direct Labor Rate Variance = (Actual Rate per Hour - Standard Rate per Hour) × Actual Hours = ($11.40 - $12.00) × 7,500 hours = -$0.60 × 7,500 hours = -$4,500 Favorable Variance

The following data is given for the Harry Company: Budgeted production 26,000 unitsActual production27,500 unitsMaterials: Standard price per ounce $6.50 Standard ounces per completed unit8 Actual ounces purchased and used in production 228,000 Actual price paid for materials$1,504,800Labor: Standard hourly labor rate$22 per hour Standard hours allowed per completed unit6.6 Actual labor hours worked183,000 Actual total labor costs$4,020,000Overhead: Actual and budgeted fixed overhead$1,029,600 Standard variable overhead rate$24.50 per standard labor hour Actual variable overhead costs$4,520,000 ​ Overhead is applied on standard labor hours. (Round interim calculations to the nearest cent.) ​ The direct labor rate variance is

-$5,490 Favorable Variance​ Rationale: Direct Labor Rate Variance = (Actual Rate per Hour - Standard Rate per Hour) × Actual Hours Actual rate per hour = Actual total labor costs / Actual labor hours worked = $4,020,000 / 183,000 = $21.97 Direct Labor Rate Variance = ($21.97 - $22.00) × 183,000 hours = -$0.03 × 183,000 hours = -$5,490 Favorable Variance​

Variances from standard costs are reported to

management

Incurring actual indirect factory wages in excess of budgeted amounts for actual production results in a

controllable variance

Which of the following is not a reason for a direct materials quantity variance?

increased material cost per unit