Question

Jenney Pharmaceutical manufactures a pharmaceutical in its Franklin, Massachusetts location. The standard costs per package for direct labor and overhead for the pharmaceutical are shown below: Standard Price Standard Quantity Direct labor $21.00 per direct labor hour ? ½ direct labor hour Variable overhead $5.00 per direct labor hour ? ½ direct labor hour Fixed overhead $2.00 per direct labor hour ??½ direct labor hour Overhead is applied based on direct labor hours. At the end of March, the controller reported the following operational results: • The company actually produced 10,000 packages of the pharmaceutical during the month of March. • 5,050 direct labor hours were worked at $ 20.75 per direct labor hour. • Actual variable overhead was $25,625. • Actual fixed overhead was $11,000 and budgeted fixed overhead was $12,000. Required: Calculate the following variances and make sure to indicate whether the variance is favorable or unfavorable. 1. The direct labor rate variance for March. 2. The direct labor efficiency variance for March. 3. The variable overhead spending variance for March. 4. The variable overhead efficiency variance for March. 5. The fixed overhead spending variance for March.

Answer 1

Std labour hours for actual output: 10000*0.50 =5000 hours
Std rate per hour: $ 21.00
Actual labour rate per hour: 20.75 per hour
Actual labour hours: 5050 hours
Labour rate variance= Actual labour hours (Std rate-actual rate)
		5050 ( 21.00-20.75) = $ 1262.50 Fav
Labour efficiency variancec= Std rate (Std hours-Actual hours)
		21.00 (5000-5050)= 1050 Unfav
Std Variable oH rate per hour: $ 5.00
Actual Variable OH rate per hour (25625/5050)= $ 5.074 per hour
Vvariable OH spending variance= Std hours*Sstd rate - Actual Variable OH incurred
			5000*5 - 25625 = 625 Unfav
Variable OH efficiency Variance= Std rate (Std horus-Actual hours)
			5.00 (5000 -5050 ) = 250 Unfav
Fixed OH spending variance= Budgeted Fixed OH-Actual fixed OH
			12000-11000 = $ 1000 Fav