Accounting: What the Numbers Mean 9th Edition by Wayne W McManus, Daniel F Viele, David H Marshall

Exercise 76

Calculate variable cost variances—explain results The standards for one case of liquid weed killer are

Direct materials	3 lbs. @ $ 6.00/lb.
Direct labor .	1.8 hrs. @ $12.00/hr.
Variable overhead (based on machine hours	0.6 hr. @ $ 3.50/hr.

During the week ended August 6, the following activity took place:

2,390 machine hours were worked.

11,400 lbs. of raw material were purchased for inventory at a total cost of $70,680.

3,800 cases of finished product were produced. 11,290 lbs. of raw material were used.

6,720 labor hours were worked at an average rate of $12.25 per hour. $8,126 actual variable overhead costs were incurred.

Required:

Calculate each of the following variances and provide plausible explanations for the results:

a. Price variance for raw materials purchased.

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b. Raw materials usage variance.

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c. Direct labor rate variance.

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d. Direct labor efficiency variance.

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e. Variable overhead spending variance.

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f. Variable overhead efficiency variance.

Step 1 of 10

Variable cost variances-related results:

Variable cost variances: The variable cost variance is a tool of variance analysis that used in budgetary control and evaluation. Basically, it includes the variances of direct material, direct labor, and other variable overheads.