Chapter 16, Problem 36E

a.

To determine

Compute the direct material price and efficiency variances.

Explanation of Solution

Compute the direct material price variances:

$\begin{array}{c}\begin{array}{l}\text{Direct material}\\ \text{price variances}\end{array}\}=\text{Actual costs}-\text{Actual inputs at standard price}\\ =\$748,000-\$704,000\\ =\$44,000\text{ U}\end{array}$

Compute the direct material efficiency variances:

$\begin{array}{c}\begin{array}{l}\text{Direct material}\\ \text{efficiency variances}\end{array}\}=\left[\left(\begin{array}{l}\text{Actual inputs at}\\ \text{standard price}\end{array}\right)-\text{Flexible Budget}\right]\\ =\$704,000-\$752,000\\ =\$48,000\text{ F}\end{array}$

Working note:

Actual cost (given) = $748,000.

Compute the actual inputs at standard price:

$\begin{array}{c}\begin{array}{l}\text{Actual inputs at}\\ \text{standard price}\end{array}\}=\text{Standard price}\times \text{Actual Quantity}\\ =\$4\times 176,000\\ =\$704,000\end{array}$

Compute the flexible budget (standard inputs allowed for good output):

$\begin{array}{c}\text{Flexible budget}=\text{Standard price}\times \text{Standard Quantity}\\ =\$2\times \text{4lbs}\times 94,000\\ =\$752,000\end{array}$

b.

To determine

Compute the direct labor price and efficiency variances.

Explanation of Solution

Compute the direct labor price variances:

$\begin{array}{c}\begin{array}{l}\text{Direct labor}\\ \text{price variances}\end{array}\}=\text{Actual costs}-\text{Actual inputs at standard price}\\ =\$1,010,000-\$969,600\\ =\$40,400\text{ U}\end{array}$

Compute the direct labor efficiency variances:

$\begin{array}{c}\begin{array}{l}\text{Direct labor}\\ \text{efficiency variances}\end{array}\}=\left[\left(\begin{array}{l}\text{Actual inputs at}\\ \text{standard price}\end{array}\right)-\text{Flexible Budget}\right]\\ =\$969,600-\$1,128,000\\ =\$158,400\text{ F}\end{array}$

Working note:

Actual cost (given) = $1,010,000.

Compute the actual inputs at standard price:

$\begin{array}{c}\begin{array}{l}\text{Actual inputs at}\\ \text{standard price}\end{array}\}=\text{Standard price}\times \text{Actual Quantity}\\ =\$24\times 40,400\\ =\$969,600\end{array}$

Compute the flexible budget (standard inputs allowed for good output):

$\begin{array}{c}\text{Flexible budget}=\text{Standard price}\times \text{Standard Quantity}\\ =\$24\times 0.5\text{ hours}\times 94,000\\ =\$1,128,000\end{array}$

c.

To determine

Compute the variable overhead price and efficiency variances.

Explanation of Solution

Compute the variable overhead price variances:

$\begin{array}{c}\begin{array}{l}\text{Variable overhead}\\ \text{price variances}\end{array}\}=\text{Actual costs}-\text{Actual inputs at standard price}\\ =\$930,000-\$808,000\\ =\$122,000\text{ U}\end{array}$

Compute the variable overhead efficiency variances:

$\begin{array}{c}\begin{array}{l}\text{Variable overhead}\\ \text{efficiency variances}\end{array}\}=\left[\left(\begin{array}{l}\text{Actual inputs at}\\ \text{standard price}\end{array}\right)-\text{Flexible Budget}\right]\\ =\$808,000-\$940,000\\ =\$132,000\text{ F}\end{array}$

Working note:

Actual cost (given) = $930,000.

Compute the actual inputs at standard price:

$\begin{array}{c}\begin{array}{l}\text{Actual inputs at}\\ \text{standard price}\end{array}\}=\text{Standard price}\times \text{Actual Quantity}\\ =\$20\times 40,400\\ =\$808,000\end{array}$

Compute the flexible budget (standard inputs allowed for good output):

$\begin{array}{c}\text{Flexible budget}=\text{Standard price}\times \text{Standard Quantity}\\ =\$20\times 0.5\text{ hours}\times 94,000\\ =\$940,000\end{array}$