8-39 Review of Chapters 7 and 8, 3-variance analysis. (CPA, adapted) The Brown Manufacturing Company\'s costing system has two direct-cost categories: direct materials and direct manufacturing labor Manufacturing overhead (both variable and fixed) is allocated to products on the basis of standard direct manufacturing labor-hours (DLH). At the beginning of 2014, Beal adopted the following standards for its manufacturing costs Direct materials Direct manufacturing labor Manufacturing overhead Input 5 lb. at $4 per lb 4 hrs. at $16 per hr Cost per Output Unit $ 20.00 64.00 $8 per DLH $9 per DLH Variable 32.00 36.00 $152.00 Standard manufacturing cost per output unit The denominator level for total manufacturing overhead per month in 2014 is 37,000 direct manufacturing labor-hours. Beal\'s flexible budget for January 2014 was based on this denominator level. The records for January indicated the following Direct materials purchased Direct materials used Direct manufacturing labor Total actual manufacturing overhead (variable and fixed) Actual production 40,300 lb. at $3.80 per lb 37,300 lb. 31,400 hrs. at $16.25 per hr $650,000 7,600 output units 1. 2. Prepare a schedule of total standard manufacturing costs for the 7,600 output units in January 2014 For the month of January 2014, compute the following variances, indicating whether each is favorable (F) or unfavorable (U): a. Direct materials price variance, based on purchases b. Direct materials efficiency variance c. Direct manufacturing labor price variance d. Direct manufacturing labor efficiency variance e. Total manufacturing overhead spending variance f. Variable manufacturing overhead efficiency variance g. Production-volume variance
Solution 1:
Solution 2a:
Direct material price variance = (SP - AP) * AQ Purchased = ($4 - $3.80) * 40300 = $8,060 F
Solution 2b:
Direct materials efficiency variance = (SQ - AQ) * SP = (7600*5 - 37300) * $4 = $2,800 F
Solution 2c:
Direct labor price variance = (SR - AR) * AH = ($16 - $16.25) * 31400 = 7,850 U
Solution 2d:
Direct labor efficiency variance = (SH - AH) *SR = (7600 * 4 - 31400) * $16 = $16,000 U
Solution 2e:
Budgeted manufacturing overhead = $243,200 + $333,000 = $576,200
Actual manufacturing overhead = $650,000
Manufacturing overhead spending variance = Budgeted manufacturing overhead - Actual manufacturing overhead
= $576,200 - $650,000 = $73,800 U
Solution 2f:
Variable overhead effiiciency variance = (SH - AH) * SR = (30400 - 31400) * $8 = $8,000 U
Solution 2g:
Fixed manufacturing overhead applied = 7600 * 4* $ 9 = $273,600
Production volume variance = Fixed manufacturing overhead applied - Budgeted fixed manufacturing overhead
= $273,600 - $333,000 = $59,400 U
| Schedule of standard manufacturing cost |
| Particulars | Amount |
| Direct materials (7600 * 5*$4) | $152,000.00 |
| Direct labor (7600*4*$16) | $486,400.00 |
| Variable manufacturing overhead (7600*4*$8) | $243,200.00 |
| Fixed manufacturing overhead (37000*$9) | $333,000.00 |
| |
| Total standard manufacturing cost | $1,214,600.00 |
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