Question

Bronfenbrenner Co. uses a standard cost system for its single product in which variable overhead is applied on the basis of direct labor hours. The following information is given:

Standard costs per unit:

Raw materials (1.5 grams × $16 per gram)	$24.00
Direct labor (0.75 hours × $8 per hour)	$6.00
Variable overhead (0.75 hours × $3 per hour)	$2.25

Actual experience for current year:

Units produced	22,400	units
Purchases of raw materials (21,000 grams × $17 per gram)	$357,000
Raw materials used	33,400	grams
Direct labor (16,750 hours × $8 per hour)	$134,000
Variable overhead cost incurred	$48,575

Required:

Compute the following variances for raw materials, direct labor, and variable overhead, assuming that the price variance for materials is recognized at point of purchase:

1. Direct materials price variance.
   b. Direct materials quantity variance.
   c. Labor rate variance.
   d. Labor efficiency variance.
   e. Variable overhead rate variance.
   f. Variable overhead efficiency variance.
   

Answer 1

1. Direct material price variance

Price variance = AQ (AP − SP) (based on quantity purchased) = 21,000 ($17 − $16) = $21,000 U

2. Direct materials quantity variance

Quantity variance = SP (AQ − SQ) (based on quantity used)= $16(33,400 − *33,600) = $3,200 F

Standard quantity = 22,400 units at 1.5 grams per unit = 33,600

3.   Direct labor rate variance

Rate variance = AH(AR − SR) = 16,750($8 − $8) = 0

4. Labor efficiency variance

Efficiency variance = SR(AH − SH) = $8(16,750 − *16,800) = $400 F

Standard hours = 22,400 units at 0.75 hours per unit = 16,800

e. Variable overhead rate variance.

Rate variance = AH(AR − SR) = 16,750(*$2.90 − $3) = $1,675 F

Actual rate = $48,575 / 16,750 hours = $2.90

6. Variable overhead efficiency variance

Efficiency variance = SR(AH − SH) = $3(16,750 − *16,800) = $150 F

Standard hours = 22,400 units at 0.75 hours per unit = 16,800