Question

The following data relates to Potawatomi Corporation's operations for the month. Potawatomi produced 8,500 units and the normal monthly capacity is 20,000 direct labor hours.

	Standard Unit Costs		Total Actual Costs
Direct Material:
Standard (5 lbs. @ $2.10/lb.)	$10.50
Actual (39,000 lbs. @ $2.20/lb.)			$85,800
Direct Labor:
Standard (2 hrs. @ $12/hr.)	$24.00
Actual (18,000 hrs. @ $11.90/hr.)			$214,200
Variable Overhead:
Standard (2 hrs. @ $4.00/hr.)	$8.00
Actual			$69,700
Total	$42.50		$369,700

Calculate the following variances: Show your solutions

a. Materials price variance

b. Materials efficiency variance

c.    Labor rate variance

d. Labor efficiency variance

e. Variable overhead spending variance

f.    Variable overhead efficiency variance

Answer 1

a. Material price variance = (Standard price - actual price)*actual quantity

= (2.10-2.20)*39000 = $3900 Unfavorable

b.Material quantity variance = (Standard quantity - actual quantity)*standard rate

= (8500*5-39000)*2.10 = $7350 Favorable

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

= (12-11.90)*18000= $1800 Favorable

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

= (8500*2-18000)*12 = $12000 Unfavorable

e. Variable overhead rate variance = (standard rate - actual rate)*actual hours

= (4-69700/18000)*18000 = $2300 Favorable

f. Variable overhead efficiency variance = (standard hours - actual hours)*standard rate

= (8500*2-18000)*4

= $4000 Unfavorable