Direct labor:

Actual hours worked: 40,000

Actual wage rate per hour: $15

DL Efficiency variance: $28,000F

Flexible budget variance for DL: $12,000U

Hermosa completed 12,000 units.

Determine the following (Hint: wherever needed work backwards):

(1) actual quantity of direct materials used,

(2) direct materials efficiency variance,

(3) standard quantity of direct material allowed per finished unit

(4) direct labor price variance,

(5) standard direct labor rate per hour, and

(6) standard direct labor time per finished unit.

Additional workout problem in variance analysis

Consider the following performance of a division of the Mary Johnson Hospital System during 2013 (all numbers are in millions of $) against budget:

	Static Budget Variance	Static (Master) Budget
Revenue	$ ?	$200.00
Variable Costs	8.50 (u)	125.00
Contribution Margin	?	75.00
Fixed Costs	2.20 (f)	40.50
Operating Income	?	34.50

The master budget was based on budgeted revenue per patient-day of $400. Total budgeted revenue was calculated by multiplying budgeted patient-days by budgeted revenue per patient-day. (A patient-day equals one paying patient staying one day at the hospital and is the output unit used by the division). To spur an increase in volume, the division cut the rates charged to the patients by an average of 12% during 2013. As a result, actual patient-days increased to 110% of the master budget patient-days.

Required:

Prepare a summary performance report that shows for each line item the flexible-budget variance and the sales volume variance and specify whether these are favorable or unfavorable. (Hint: What is the relationship between static budget, flexible budget and sales volume variances?)

Solution:

	Actual	FBV	Flexible Budget	SVV	Master Budget
Patient-days
Revenue
Variable costs
Contribution Margin
Fixed Costs
Operating Income

Workout Problem in Variance Analysis Hermosa Enterprises recently experienced a fire, forcing the company to use incomplete information to analyze operations. Consider the following data and assume that all direct materials purchased during the period were used in production: Direct materials: Standard price per pound: $9 Actual price per pound: $8 DM Price variance: $20,000F Flexible budget variance for DM: $2,000F Workout Problem in Variance Analysis Hermosa Enterprises recently experienced a fire, forcing the company to use incomplete information to analyze operations. Consider the following data and assume that all direct materials purchased during the period were used in production: Direct materials: Standard price per pound: $9 Actual price per pound: $8 DM Price variance: $20,000F Flexible budget variance for DM: $2,000F