Standard Cost Variances Part I

Clair Rogers, vice-president of XYZ Company, was pleased to see a small variance on the income statement after the trouble the company had been having in controlling manufacturing costs. She noted that the $17,016 overall manufacturing variance reported last period was well below the 3% limit that had been set for variances. The company produces and sells a single product. The standard cost card for the product follows:

Standard Cost CardPer UnitDirect materials, 4 metres at $2.60 per metre$10.40Direct labour, 1.6 direct labour-hours at $10.0 per direct labour-hour16.00Variable overhead, 1.6 direct labour-hours at $2.7 per direct labour-hour4.32Fixed overhead, 1.6 direct labour-hours at $5 per direct labour-hour8.00Standard cost per unit$38.72

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

1. The company manufactured 21,000 units of product during the year.
2. A total of 83,020 metres of material was purchased during the year at a cost of $2.80 per metre. All of this material was used to manufacture the 21,000 units. There were no beginning or ending inventories for the year.
3. The company worked 34,700 direct labour-hours during the year at a cost of $9.80 per hour.
4. Overhead cost is applied to products on the basis of standard direct labour-hours. Data relating to manufacturing overhead costs follow:

Denominator activity level (direct labour-hours)32,800Budgeted fixed overhead costs (from the flexible budget)$164,000Actual fixed overhead costs$162,350Actual variable overhead costs$95,270

Required:

1.Compute the direct materials price and quantity variances for the year.(Indicate the effect of each variance by selecting "F" for favorable, "U" for unfavorable, and "None" for no effect (i.e., zero variance).)

2.Compute the direct labour rate and efficiency variances for the year.(Indicate the effect of each variance by selecting "F" for favorable, "U" for unfavorable, and "None" for no effect (i.e., zero variance).)

3.For manufacturing overhead, compute the following:

a.The variable overhead spending and efficiency variances for the year.(Indicate the effect of each variance by selecting "F" for favorable, "U" for unfavorable, and "None" for no effect (i.e., zero variance).)

Variable overhead spending variance

Variable overhead efficiency variance