Part 1 Cost variance analysis Gourmet Inc produces container

Part 1 Cost variance analysis Gourmet, Inc. produces containers of frozen food. During October the company had the following actual production and costs Actual Containers produced in October Variable Overhead Fixed Overhead Direct Labor cost Actual material purchased Actual Material pounds used 725 $5,500 $14,000 $75,600 Which s 4,000 Direct labor hours $33,000 Which is 15,000 pounds 14,900 pounds Overhead is budgeted and applied using direct-labor hours. Standard cost and annual budget information are as follows Standard cost per container Direct Labor Direct Material 5 hours 20 pounds at $18 $2 $90 $40 Direct labor Variable overhead 5 hours at $1.50 $7.50 Direct labor Fixed Overhead Total 5 hours at $3 Budgeted Monthly Fixed Overhead $12,500 Required: Make sure you do not forget to label the variances U or F. You need to show your work either by cell reference or showing your calculation to the side. 1. Calculate the direct materials price and quantity variance Materials price variance Materials Quantity variance 2. Calculate the direct labor rate and efficiency variances Labor rate variance Labor Efficiency variance 3. Callate the variable overhead spending and efficiency variances Variable overhead spending variance Variable overhead efficiency variance 4 Calculate the fixed overhead budget variance Fixed overhead budget variance 5. Pick out the two variances that you computed above that you think should be further investigated. Explain why you picked these 2 variances and what might be the possible cause of the variances

Solution

Solution 1:

Actual production = 725 containers

Standard quantity of material = 725*20 = 14500 pounds

Actual quantity of material used = 14900 pounds

Standard rate of material = $2 per pound

Actual rate of material = $33,000/15000 = $2.2 per pound

Material price variance = (SR - AR)*AQ = (2 - 2.2)*14900 = $2,980 U

Material Qty variance = (SQ - AQ) * SR = (14500 - 14900) * 2 = $800U

Solution 2:

Standard hours of labor = 725*5 = 3625 hours

Actual hours of labor used = 4000 hours

Standard rate of labor = $18 per hour

Actual rate of labor = $75,600/4000 = $18.90 per hour

Labor rate variance = (SR - AR)*AH = (18 - 18.90)*4000 = $3,600 U

Labor efficiency variance = (SH - AH) * SR = (3625 - 4000) * 18 = $6,750 U

Solution 3:

Standard hours = 725*5 = 3625 hours

Actual hours = 4000 hours

Standard rate of variable overhead = $1.50 per hour

Actual rate of variable overhead = $5,500/4000 = $1.375 per hour

Variable overhead spending variance = (SR - AR)*AH = (1.50 - 1.375)*4000 = $500 F

Variable overhead efficiency variance = (SH - AH) * SR = (3625 - 4000) * 1.50 = $562.50 U

Solution 4:

Budgeted monthly fixed overhead = $12,500

Acutal monthly fixed overhead = $14,000

Fixed overhead budget variance = Budgeted overhead - Actual overhead = $12,500 - $14,000 = $1,500 U