
Concept explainers
1.
The direct materials cost variance, price variance and quantity variance.
1.

Explanation of Solution
Given,
The actual material used is 1,000,000 lbs.
The standard quantity of materials for actual production is 1,050,000 lbs.
The actual price is $4.25 per lb.
The standard price is $4.00 per lb.
Calculation of direct material cost variance:
Particulars | Amount ($) |
Actual units at actual cost | 4,250,000 |
Standard units at | 4,200,000 |
Direct material cost variance | 50,000 (unfavorable) |
The direct material cost variance is $50,000 (unfavorable).
Calculation of direct material price variance:
The formula to calculate the direct material price variance is,
Substitute 1,000,000 lb. for the actual quantity, $4.25 for the actual price and $4 for the standard price in the above formula.
The direct material price variance is $250,000 (unfavorable).
Calculation of direct material quantity variance:
The formula to calculate the direct material quantity variance is,
Substitute 1,000,000 lb for the actual quantity, 1,050,000 lb for standard quantity and $4.00 for standard price in the above formula.
The direct material quantity variance is $200,000 (unfavorable).
Hence, the direct material cost variance, price variance and quantity variance is $50,000 (unfavorable), $250,000 (unfavorable) and $200,000 (unfavorable).
2.
The direct labor cost, rate and efficiency variances.
2.

Explanation of Solution
Given,
The actual hours used is 250,000 hours.
The standard hours for actual production are 252,000 hours.
The actual rate is $7.75 per hour.
The standard rate is $8.00 per hour.
Calculation of direct labor cost variance:
Particulars | Amount ($) |
Actual hours at actual cost | 1,937,500 |
Standard hours at standard cost | 2,016,000 |
Direct labor cost variance | 78,500 (favorable) |
The direct labor cost variance is $78,500 (favorable).
Calculation of direct labor rate variance:
The formula to calculate the direct labor rate variance is,
Substitute 250,000 hours for the actual hours, $7.75 for the actual rate and $8 for the standard rate in the above formula.
The direct labor rate variance is $62,500 (favorable).
Calculation of direct labor efficiency variance:
The formula to calculate the direct labor efficiency variance is,
Substitute 250,000 for the actual hours, 252,000 for standard hours and $8.00 for standard rate in the above formula.
The direct labor efficiency variance is $16,000 (favorable).
Hence, the direct labor cost variance, rate variance and efficiency variance is $78,500 (favorable), $62,500 (favorable) and $16,000 (favorable).
3.
The
3.

Explanation of Solution
Calculation of the overhead controllable variance:
Particulars | Amount ($) |
Actual overhead incurred ($1,960,000+$1,200,000) | 3,160,000 |
Budgeted overhead (from flexible budget) | 3,276,000 |
Controllable overhead variance | 116,000 (favorable) |
The overhead controllable variance is $116,000 (favorable).
Calculation of the fixed overhead volume variance:
Particulars | Amount ($) |
Budgeted fixed overhead(at 80% capacity) | 2,016,000 |
Fixed overhead | 1,764,000 |
Fixed overhead volume variance | 252,000 (unfavorable) |
The fixed overhead volume variance is $252,000 (unfavorable).
Thus, the overhead controllable variance is $116,000 (favorable) and the fixed overhead volume variance is $252,000 (unfavorable).
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Chapter 21 Solutions
FINANCIAL & MANAGERIAL ACCOUNTING
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