The Eight Variances

“It certainly is nice to see that small variance on the income statement after all the trouble we’ve had lately in controlling manufacturing costs,” said Linda White, vice president of Molina Company. “The $12,250 overall manufacturing variance reported last period is well below the 3% limit we have set for variances. We need to congratulate everybody on a job well done.”

The company produces and sells a single product. The standard cost card for the product follows:

Standard Cost Card-Per Unit

Direct materials, 4 yards at $3.50 per yard $14

Direct labor, 1.5 direct labor-hours at $12 per direct labor-hour 18

Variable overhead, 1.5 direct labor-hours at $2 per direct labor0hour 3

Fixed overhead, 1.5 direct labor hours at $6 per direct labor-hour 9

Standard cost per unit $44

The following additional information is available for the year just completed:

a. The company manufactured 20,000 units of product during the year.

b. A total of 78,000 yards of material was purchased during the year at a cost of $3.75 per yard. All of this material was used to manufacture the 20,000 units. There were no beginning or ending inventories for the year.

c. The company worked 32,500 direct labor-hours at a cost of $11.80 per hour.

d. Overhead cost is applied to products on the basis of standard direct labor-hours. Data relating to manufacturing overhead costs follow:

Denominator activity level (direct labor-hours) $25,000

Budgeted fixed overhead costs (from the flexible budget) $150,000

Actual fixed overhead costs $148,000

Actual variable overhead costs $68,250

Required:

1. Compute the eight variances that were discussed in class.

Dmat

Vp=(3.75-3.50) 78,000 = 19,500 U

Vq=(78,000-80,000) 3.50 = 7,000 F

Dlab

Vp= (11.80-12.00) 32,500= 6,500 F

Vq= (32,500-30,000) 12 = 30,000 U

VOH

Vp= (2.1-2.0) 32,500 = 3.250 U

Vq= (32,500-30,000) 2 = 5000 U

FOH

SpVar=...