Handout 7-1: Standard Cost Variances

Boise Recreational Supplies makes a large tent that they sell to the U. S. Army. Following is the information relative to the year ended December 31, 2013. During the year they manufactured 1,000 tents. Standard cost for each tent is as follows: 50 yards of canvas with a standard price of $5.00 per yard. It takes a worker 8 hours to cut and stitch a tent. Workers standard labor rate is $20 per hour. Variable overhead is applied at the rate of $5.00 per direct labor hour.

During the year they purchased 60,000 yards of canvas for $360,000. They used 55,000 yards to produce the 1,000 tents. The laborers worked 7,000 direct labor hours and were paid $175,000. Actual variable overhead was $49,000.

Required:

Compute the material quantity and price variances.

Compute the labor efficiency and rate variances.

Compute the variable overhead spending and efficiency variances.

Why do companies do variance analysis?

To what general ledger accounts are the variances closed to?