Cost Management: A Strategic Emphasis 5th Edition by David Stout, Edward Blocher, Gary Cokins

Exercise 48

Two-Variance Analysis and Direct Labor Variance Marilyn, Inc., uses a standard cost system and analyzes overhead using a two-variance analysis. The following information relates to its operations in April:

Actual total cost for direct labor	$86,800
Total direct labor hours worked	14,000
Total standard labor hours for the output in April	15,000
Direct labor rate variance—unfavorable	$2,800
Actual total overhead cost	$32,000
Budgeted fixed overhead cost	$9,000
Practical capacity, in hours	12,000
Total overhead application rate per standard direct labor hour	$2.25

Note: For the analysis of the total overhead variance, set up a model similar to the one presented in Exhibit 15.17 .

Required

1. What was Marilyn’s direct labor efficiency variance for April?

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2. What was Marilyn’s factory overhead flexible-budget variance for April?

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3. What was Marilyn’s production-volume variance for April?

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4. What is the relationship between the direct labor efficiency variance and the variable overhead efficiency variance?

Step 1 of 8

Variance vs Budgets:

In costing, variance is a difference occurred between planned, standard or budgeted cost and the actual cost incurred. These variances can be for both cost and revenue. These variances can be favourable or unfavourable.