Managerial Accounting

Bonus Questions

Milar Corporation makes a product with the following standard costs:

Standard Quantity or
Hours Standard Price or Rate
Direct materials 7.7 pounds $ 4.00per pound
Direct labor 0.1 hours $ 20.00per hour
Variable overhead 0.1 hours $ 4.00per hour

In January the company produced 2,000 units using 16,060 pounds of the direct material and 210
direct labor-hours. During the month, the company purchased 16,900 pounds of the direct
material at a cost of $65,910. The actual direct labor cost was $4,473 and the actual variable
overhead cost was $756.

The company applies variable overhead on the basis of direct labor-hours. The direct materials
purchases variance is computed when the materials are purchased.

Calculate:
a. The materials quantity variance
b. The materials price variance
c. The labor efficiency variance
d. The labor rate variance
e. The variable overhead efficiency variance
f. The variable overhead rate variance

Here is how to calculate each variance:

a. Materials quantity variance = (actual quantity - standard quantity) x standard price

= (16,060 - (2,000 x 7.7)) x $4.00
= $2,508 unfavorable

b. Materials price variance = (actual price - standard price) x actual quantity

= ($65,910 / 16,900 - $4.00) x 16,900
= $1,990 unfavorable

c. Labor efficiency variance = (actual hours - standard hours) x standard rate

= (210 - (2,000 x 0.1)) x $20.00
= $177 unfavorable

d. Labor rate variance = (actual rate - standard rate) x actual hours

 = ($4,473 / 210 - $20.00) x 210
= $27 unfavorable

e. Variable overhead efficiency variance = (actual hours - standard hours) x standard rate
= (210 - (2,000 x 0.1)) x $4.00
= $18 favorable

f. Variable overhead rate variance = (actual rate - standard rate) x actual hours
= ($756 / 210 - $4.00) x 210
= $4 unfavorable

a. The materials quantity variance for January is $2,508 unfavorable.

b. The materials price variance for January is $1,990 unfavorable.

c. The labor efficiency variance for January is $177 unfavorable.

d. The labor rate variance for January is $27 unfavorable.

e. The variable overhead efficiency variance for January is $18 favorable.

f. The variable overhead rate variance for January is $4 unfavorable.