Gourmet, Inc. produces containers of frozen food. During October the company had the following actual production and costs.

• Actual Containers produced in October 725
• Variable Overhead $5,500
• Fixed Overhead $13,000
• Direct Labor cost $75,600 Which is 4,000 Direct labor hours
• Actual material purchased $33,000 Which is 15,000 pounds
• Actual Material pounds used 14,800 pounds

Overhead is budgeted and applied using direct-labor hours. Standard cost and annual budget information are as follows:

Standard cost per container

• Direct Labor 5 hours at $18 $90
• Direct Material 20 pounds at $2 $40
• Variable overhead 5 Direct labor hours at $1.50 $7.50
• Fixed Overhead 5 Direct labor hours at $3 $15
• Total $ 152.50

Annual Budget Information

• Variable Overhead $75,000
• Fixed Overhead $150,000
• Planned activity for year 50,000 Direct-labor hours

Required: Make sure you do not forget to label the variances U or F. You need to show your work either by cell reference or showing your calculation to the side.

1. Calculate the direct materials price and quantity variance.

Direct-material purchase price variance should be based on material purchased, since you want to isolate the variance as soon as possible.

Direct-material Quantity variance should be based on materials used, since this is monitoring the production efficiency.

Direct-material purchase price variance

Direct-material Quantity variance

2. Calculate the direct labor rate and efficiency variances.

Direct-labor rate variance

Direct-labor Efficiency variance

3. Variable manufacturing overhead spending and efficiency variances.

Variable overhead spending variance

Variable overhead efficiency variance

4. Fixed manufacturing overhead spending and volume variances.

Fixed Manufacturing overhead spending variance

Fixed overhead volume variance

5. Pick out the two variances that you computed above that you think should be further investigated. Explain why you picked these 2 variances and what might be the possible cause of the variances.