Question

Bronfenbrenner Co. uses a standard cost system for its single product in which variable overhead is applied on the basis of direct labor hours. The following information is given: Standard costs per unit: Raw materials (1.5 grams at $16 per gram) ............................ $24.00 Direct labor (0.75 hours at $8 per hour) .................................. $6.00 Variable overhead (0.75 hours at $3 per hour) ........................ $2.25 Actual experience for current year: Units produced ........................................................................ 22,400 units Purchases of raw materials (21,000 grams at $17 per gram) .. $357,000 Raw materials used .................................................................. 33,400 grams Direct labor (16,750 hours at $8 per hour) .............................. $134,000 Variable overhead cost incurred .............................................. $48,575 Required: Compute the following variances for raw materials, direct labor, and variable overhead, assuming that the price variance for materials is recognized at point of purchase: a. Direct materials price variance. b. Direct materials quantity variance. c. Direct labor rate variance. d. Direct labor efficiency variance. e. Variable overhead spending variance. f. Variable overhead efficiency variance. g. As a manager, why is variance analysis important

Answer 1

a. Material price variance = (Standard price - Actual price)*Actual quantity purchased

Material price variance = (16-17)*21000

Material price variance = $21,000 Unfavorable

b. Material quantity variance = (Standard quantity - Actual quantity used)*Standard rate

Material quantity variance = (22400*1.50-33400)*16

Material quantity variance = $3,200 Favorable

c. Direct Labor rate variance = (Standard rate per hour - Actual rate per hour)*Actual hours worked

Labor rate variance = ($8-$8)*16750

Labor rate variance = $0

d. Direct Labor efficiency variance = (Standard hours allowed - Actual hours worked)*Standard rate per hour

Labor time variance = (22400*0.75-16750)*8

Labor time variance = $400 Favorable

e, Variable overhead spending variance = (Standard rate - Actual rate)*Actual hours

Variable overhead spending variance = (3-48,575/16750)*16750

Variable overhead spending variance = $1,675 Favorable

f. Variable overhead efficiency variance = (Standard hours - Actual hours)*Standard rate

Variable overhead efficiency variance = (22400*0.75-16750)*3

Variable overhead efficiency variance = $150 Favorable

g. Variance analysis helps the management in taking corrective action. It helps the management in understanding which department is doing well and which is not doing well. It helps the in understanding production bottle necks when certain variances appear like material efficiency or labor efficiency.