
1
Compute the direct materials cost variance, including its price and quantity variance.
1

Explanation of Solution
Direct material price variance:
The variation in between actual price and estimated price paid for materials is called material price variance. It is used to determine difference in price paid for material the price that was supposed to be paid for material.
The following formula is used to calculate direct material price variance:
Compute the direct materials price variance:
Direct material quantity variance:
The variance which is used to compare the actual quantity of materials utilized in production with estimated quantity of materials that is supposed to be used in production and helps to find variation is called material quantity variance.
The following formula is used to calculate direct material quantity variance:
Compute the direct materials quantity variance:
Direct materials cost variance is a measure that determines the difference between the estimated cost of the direct material and the actual cost of the direct material purchased.
Calculate the total direct materials cost variance:
Alternative calculation:
Calculate the total direct materials cost variance:
Hence, the total direct materials cost variance is $141,500 (unfavorable).
2.
Compute the direct labor cost variance, including its rate variances and efficiency variances.
2.

Explanation of Solution
Direct Labor Rate Variance
The direct labor rate variance is a measure to determine the variation in the estimated cost of the direct labor and the actual cost of the direct labor.
Compute the direct labor rate variance:
Direct labor efficiency variance is a measure that determines the difference between the estimated labor quantity and the actual labor quantity used.
Compute the direct labor efficiency variance:
Direct labor cost variance is a measure that determines the difference between the estimated cost of the direct labor and the actual cost of the direct labor.
Calculate the total direct labor cost variance:
Alternative calculation:
Calculate the total direct labor cost variance:
Hence, the total direct labor cost variance is $136,250 (favorable).
3.
Compute the
3.

Explanation of Solution
Overhead Controllable Variance: Overhead controllable variance is determined by subtracting budgeted overhead to be incurred in standard hours from actual overhead incurred in the standard hours
Compute the overhead controllable variance:
Particulars | Amount ($) |
Actual overhead | 4,550,000 |
Less: Budget overhead | (4,560,000) |
Overhead controllable variance | $10,000 F |
Table (1)
Working notes:
Calculate the amount of actual overhead.
Calculate the amount of budgeted overhead.
Overhead Volume Variance: Overhead volume variance is determined by multiplying the difference of normal capacity and standard hours with the fixed overhead rate.
Compute the overhead volume variance:
Particulars | Amount ($) |
Budgeted fixed overhead | 2,400,000 |
Less: Total Fixed overhead applied | 2,700,000 |
Fixed volume overhead variance | $300,000 F |
Table (2)
Working notes:
Calculate the amount of fixed overhead applied.
Hence, the overhead controllable variance is $10,000 F and overhead volume variance is $300,000 F.
Want to see more full solutions like this?
Chapter 23 Solutions
Principles of Financial Accounting, Chapters 1-17 - With Access (Looseleaf)
- On May 1, Sandhill Company had beginning inventory consisting of 360 units with a unit cost of $8. During May, the company purchased inventory as follows: 720 units at $8 1080 units at $9 The company sold 1800 units during the month for $14 per unit. Sandhill uses the average-cost method. Assuming that a periodic inventory system is used, the value of Sandhill's inventory at May 31 is (Round average cost per unit to 2 decimal places, e.g. 12.52.) ○ $3240 ○ $18360 ○ $3060 ○ $2880arrow_forwardSuppose that Sandhill Trading Post has the following inventory data: July 1 Beginning inventory 46 units at $23 $1058 7 Purchases 162 units at $24 3888 22 Purchases 23 units at $26 598 $5544 The company uses a periodic inventory system. A physical count of merchandise inventory on July 31 reveals that there are 58 units on hand. Using the LIFO inventory method, the amount allocated to cost of goods sold for July is ○ $4198. ○ $4036. ○ $3932. ○ $4106.arrow_forwardSuppose that Sandhill Trading Post has the following inventory data: July 1 Beginning inventory 46 units at $23 $1058 7 Purchases 162 units at $24 3888 22 Purchases 23 units at $26 598 $5544 The company uses a periodic inventory system. A physical count of merchandise inventory on July 31 reveals that there are 58 units on hand. Using the LIFO inventory method, the amount allocated to cost of goods sold for July is ○ $4198. ○ $4036. ○ $3932. ○ $4106.arrow_forward
- Suppose that Ivanhoe Depot Inc. has the following inventory data: July 1 Beginning inventory 24 units at $19 $456 7 Purchases 84 units at $20 1680 22 Purchases 12 units at $22 264 $2400 The company uses a periodic inventory system. A physical count of merchandise inventory on July 31 reveals that there are 40 units on hand. Using the FIFO inventory method, the amount allocated to ending inventory for July is ○ $824. 000 $800. ○ $880. ○ $776.arrow_forwardA company has a total cost of $50.00 per unit at a volume of 100,000 units. The variable cost per unit is $20.00. What would the price be if the company expected a volume of 120,000 units and used a markup of50%?arrow_forwardAccurate Answerarrow_forward
- 1.1.3 accounting .arrow_forwardAssume the following informationarrow_forwardThe addition of the cost of goods sold (COGS) and gross profit is the main way that a merchandising company's income statement differs from that of a service organization. Since a merchandising business makes their money by selling material goods, sales revenue, COGS, and gross profit before operating expenditures are subtracted which are all included in its income statement. A service company, on the other hand, does not have a COGS section because they have no inventory involved but instead generates their income through the delivery of services (Weygandt, Kimmel, & Kieso, 2022). The income statement of a merchandising company will usually have only a single-step or could have a multi-step style, with the multi-step clearly separating the net income from the operational income and gross profit. This difference is important because COGS is a major part of financial reporting for merchandising organizations, because it has a direct impact on profitability and financial analysis…arrow_forward
- AccountingAccountingISBN:9781337272094Author:WARREN, Carl S., Reeve, James M., Duchac, Jonathan E.Publisher:Cengage Learning,Accounting Information SystemsAccountingISBN:9781337619202Author:Hall, James A.Publisher:Cengage Learning,
- Horngren's Cost Accounting: A Managerial Emphasis...AccountingISBN:9780134475585Author:Srikant M. Datar, Madhav V. RajanPublisher:PEARSONIntermediate AccountingAccountingISBN:9781259722660Author:J. David Spiceland, Mark W. Nelson, Wayne M ThomasPublisher:McGraw-Hill EducationFinancial and Managerial AccountingAccountingISBN:9781259726705Author:John J Wild, Ken W. Shaw, Barbara Chiappetta Fundamental Accounting PrinciplesPublisher:McGraw-Hill Education





