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Concept explainers
1.
The direct materials cost variance, price variance and quantity variance.
1.
![Check Mark](/static/check-mark.png)
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.
![Check Mark](/static/check-mark.png)
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 $16,000 (favorable).
3.
The overhead controllable and volume variances.
3.
![Check Mark](/static/check-mark.png)
Explanation of Solution
Calculation of the overhead controllable variance:
Particulars | Amount ($) |
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 8 Solutions
MANAGERIAL ACCOUNTING FUND. W/CONNECT
- 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
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