Comprehensive Problem 5 Part C: Note: This section is a continuation from Parts A and B of the comprehensive problem. Be sure you have completed Parts A and B before attempting Part C. You may have to refer back to data presented in Parts A and B as well as use answers from those parts when completing this section. Genuine Spice Inc. began operations on January 1 of the current year. The company produces eight- ounce bottles of hand and body lotion called Eternal Beauty. The lotion is sold wholesale in 12-bottle cases for $100 per case. There is a selling commission of $20 per case. The January direct materials, direct labor, and factory overhead costs are as follows: DIRECT MATERIALS Cost Behavior Units per Case Cost per Unit Direct Materials Cost per Case Cream base Variable 100 ozs. $0.02 $2.00 Natural oils Variable 30 ozs. 0.30 9.00 Bottle (8-oz.) Variable 12 bottles 0.50 6.00 $17.00 DIRECT LABOR Department Cost Behavior Time per Case Labor Rate per Hour Direct Labor Cost per Case Mixing Variable 20 min. $18.00 $6.00 Filling Variable 5 14.40 1.20 25 min. $7.20 FACTORY OVERHEAD Cost Behavior Total Cost Utilities Mixed $600 Facility lease Fixed 14,000 Equipment depreciation Fixed 4,300 Supplies Fixed 660 $19,560 Part CAugust Variance Analysis During September of the current year, the controller was asked to perform variance analyses for August. The January operating data provided the standard prices, rates, times, and quantities per case. There were 1,500 actual cases produced during August, which was 250 more cases than planned at the beginning of the month. Actual data for August were as follows: Actual Direct Materials Price per Unit Actual Direct Materials Quantity per Case Cream base $0.016 per oz. 102 ozs. Natural oils $0.32 per oz. 31 ozs. Bottle (8-oz.) $0.42 per bottle 12.5 bottles Actual Direct Labor Rate Actual Direct Labor Time per Case Mixing $18.20 19.50 min. Filling 14.00 5.60 min. Actual variable overhead $305.00 Normal volume 1,600 cases The prices of the materials were different from standard due to fluctuations in market prices. The standard quantity of materials used per case was an ideal standard. The Mixing Department used a higher grade labor classification during the month, thus causing the actual labor rate to exceed standard. The Filling Department used a lower grade labor classification during the month, thus causing the actual labor rate to be less than standard. Required: 10. Determine and interpret the direct materials price and quantity variances for the three materials. Enter the costs in dollars and cents (carried to three decimal places when required). Enter all amounts as positive numbers. Direct Materials Price Variance: Cream Base Natural Oils Bottles Actual price $ 0.016 $ 0.32 $ 0.42 Standard price 0.02 0.3 0.5 Difference $ 0.004 $ 0.02 $ 0.08 Actual quantity (units) X 153,000 ozs. X 46,500 ozs. X 18,750 btls. Direct materials price variance $ 612 $ 930 $ 1,500 Indicate if favorable or unfavorable Favorable Unfavorable Favorable Enter the standard price to two decimal places. Direct Materials Quantity Variance: Cream Base Natural Oils Bottles Actual quantity 153,000 ozs. 46,500 ozs. 18,750 btls. Standard quantity 150,000 45,000 18,000 Difference 3,000 ozs. 1,500 ozs. 750 btls. Standard price X $ 0.02 X $ 0.3 X $ 0.5 Direct materials quantity variance $ 60 $ 450 $ 375 Indicate if favorable or unfavorable Unfavorable Unfavorable Unfavorable The fluctuation in market prices caused the direct material price variances. All the quantity variances were unfavorable indicating some material losses and rejections . 11. Determine and interpret the direct labor rate and time variances for the two departments. Do not round hours. Enter the costs in dollars and cents. Enter all amounts as positive numbers. Direct Labor Rate Variance: Mixing Department Filling Department Actual rate $ 18.2 $ 14 Standard rate 18 14.4 Difference $ 0.2 $ 0.4 Actual time (hours) X 488 X 140 Direct labor rate variance $ 97.6 $ 56.00 Indicate if favorable or unfavorable Unfavorable Favorable Direct Labor Time Variance: Mixing Department Filling Department Actual time (hours) 140 Standard time (hours) 500 125 Difference 0.2 15 Standard rate X $ 18 X $ 14.40 Direct labor time variance $ 144 $ 216 Indicate if favorable or unfavorable Favorable Unfavorable The change in the labor classification caused the labor rate variances. This change could also have been responsible for the direct labor time variance. 12. Determine and interpret the factory overhead controllable variance. Enter all amounts as positive numbers. Actual variable overhead $ 305 Variable overhead at standard cost 300 Factory overhead controllable variance $ 5 Indicate if favorable or unfavorable Unfavorable The factory overhead controllable variance was caused by the variance in utilities . 13. Determine and interpret the factory overhead volume variance. When determining the fixed factory overhead rate, round the factory overhead rate to two decimal places and the factory overhead volume variance to whole dollars. Enter all amounts as positive numbers. Normal volume (cases) 1,600 Actual volume (cases) 1,500 Difference 100 Fixed factory overhead rate $ 12.16 Factory overhead volume variance $ 1,216 Indicate if favorable or unfavorable Unfavorable The volume variance indicates the cost of underused capacity . 14. Why are the standard direct labor and direct materials costs in the calculations for parts (10) and (11) based on the actual 1,500-case production volume rather than the planned 1,375 cases of production used in the budgets for parts (6) and (7)? Variable costs of the budget must flex to the actual production volume so that variances are compared across the same production volume. Feedback 10. Price variance is the difference between the actual and standard price, multiplied by the actual quantity. Quantity variance is the difference between the actual and standard quantities, multiplied by the standard price. What caused the price and quantity variances? 11. Labor rate variance is the difference between the actual and standard hourly rate, multiplied by the actual hours. Time variance is the difference between the actual and standard hours, multiplied by the standard rate per hour. What caused the rate and time variances? 12, 13. Overhead controllable variance is the difference between the actual variable overhead and the standard variable overhead for actual units. (Use the high-low method to determine the variable overhead.) Overhead volume variance is the difference between the normal production capacity and the actual units produced, multiplied by the fixed overhead rate. What caused the controllable and volume variances?