Easter College

Department of Business Management

Easter Road, Guisad, Baguio City

PROBLEM 1

Shasha company produces single product. Variable manufacturing overhead is applied to products on
the basis of direct labor hours. The standard costs for one unit of product are as follows:

Direct materials: 6 ounces at $ 0.50 per ounce………………………………. $ 3.00

Direct labor: 0.6 hours at $ 30 per hour………………………………………….$ 18.00

Variable manufacturing overhead: 0.6 hours at $ 10.00 per hour……$ 6.00

Total standard variable cost per unit……………………………………………….$ 27.00

During June, 2000 units were produced. The costs associated with June’s operations were as follows:
The standard materials in units is 12,000 ounces. The standard direct labors hours is 1,200.

Material Purchased: 18,000 ounces at $ 0.60 per ounce……………………$ 10,800

Material used in production: 18,000 ounces at $ 0.60 per ounce…….$ 10,800

Direct labor: 1,100 hours at $ 30.50 per hour…………………………………..$ 33,550

Variable manufacturing overhead costs incurred……………………………..$ 12,980

REQUIRED:

1. What is the material price variance?

(AQ x AP)-(AQ x SP)
=(18,000 x 0.60)-(18,000 x 0.50)
=10,800-9000
=1,800 U
2. What is the material quantity variance?
(AQ x SP)-(SQ x SP)
=(18,000 x 0.50)-(12,000 x 0.50)
=9,000-6,000
=3,000 U

3. What is the material spending variance?

=1,800 U + 3,000 U
=4, 800 U
4. What is the labor rate variance?
(AH x AR)-(AH x SR)
=(1,100 x 30.50) – (1,100 x 30)
=33,550-33,00
=550 U
5. What is the labor efficiency variance?
(AH x SR)-(SH x SR)
=(1,100 x 30)-(1,200 x 30)
=33,000-36,000
=3,000 F
6. What is the labor spending variance?
=550 U + 3,000 F
=2,450 F

7. What is the variable manufacturing overhead rate variance?

(AH x AR)-(AH x SR)
=12,980-(1,100 x 10)
=12,980-11,000
=1,980 U
8. What is the variable manufacturing overhead efficiency variance?
(AH x SR)-(SH x SR)
=(1,100 x 10)-(1,200 x 10)
=11,000-12,000

Management Accounting
Dulnuan,S.G
 Easter College
Department of Business Management
Easter Road, Guisad, Baguio City

=1,000 F
9. What is the variable manufacturing overhead spending variance?
=1,980 U + 1,000 F
=980 U
10. What is the TOTAL spending variance? (tip: pertains to net sum of material, labor and variable
manufacturing overhead variances)
=4,800 U + 2,450 F + 980 U
=3,330 U

PROBLEM 2

Inputs Standard Quantity Standard Price

Direct Materials…………………………………….3.0 pounds $ 4.00 per pound

Direct Labor ………………………………………….0.50 hours $ 22.00 per hour

Variable Manufacturing Overhead…………0.50 hours $ 6 per hour

The standard direct labor hours is 1,050.

Actual Results:

Actual production………..2,100 units

Actual Variable manufacturing overhead cost…. $ 5,100---------- $ 5 per hour

Actual Quantity Actual Price

Actual Direct materials costs…………………..6,350 pounds $ 4.10 per pound

Actual Direct labor cost…………………………..1,020 hours $ 22.10 per hour

REQUIRED:

1. What is the materials quantity variance?

=6350 x 4-3x 2,100 x4
=25,400-25,200
=200 U
2. What is the materials price variance?
=6,350 x 4.10-6350 x 4
=26,035-25,400
=635 U
3. What is the labor efficiency variance?
=1,020 x 22.10 – 1,020 x 22
=22,542- 22,440
=102 U
4. What is the labor rate variance?
=1,020 x 22 – 1,050 x 22
=22,440- 23,100
= 660 F
***2,100 x 0.50 hrs = 1,050
5. What is the variable overhead efficiency variance?
=5,100-(1,050 x 6)
=5,100-6,300
=1,200 F

Management Accounting
Dulnuan,S.G