Chapter 8, Problem 8.42P

1.

To determine

Spending Variance:

Spending variance is the deviation of actual expenses from the budgeted expenses.

Efficiency Variance:

Efficiency variance is the distinction between actual quantity of input and estimated quantity of input purchased for a particular price.

Production-Volume Variance:

Production volume variance determines the amount of overhead employed to the quantity produced. It is the distinction between the actual quantity manufactured and estimated quantity that should have been manufactured multiplied by budgeted overhead rate.

Price Variance:

Price variance is the distinction between the estimated or budgeted price of the input material and actual price of the input material multiplied by actual volume of input.

Budgeted fixed overhead rate:

Budgeted fixed overhead rate is the sum total of estimated overhead cost divided by the total volume of budgeted cost allocation base.

To compute: a. Direct materials efficiency variance, b. direct materials rice variance, c. Direct labor efficiency variance, d. Direct labor price variance, e. Total manufacturing overhead manufacturing variance, f. Fixed overhead flexible budget variance, g. Fixed overhead production-volume variance.

2.

To determine

To prepare: Gross margin for K Company’s first year of operation