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Problem-1 (Materials, Labor and Variable Overhead Variances)

P&G uses standard costs to control costs of its detergent product. In August 2012: - Materials price variance was $4,000 favorable as materials were purchased for less than standard price. Materials quantity variance was $18,000 unfavorable as more materials than standard were used. - Labor rate variance was $1,600 unfavorable as actual labor costs exceeded the standard rate. Labor efficiency variance was $4,800 favorable as less labor than standard was used. - Variable overhead spending variance was $800 favorable as actual overhead spent was less than standard rate. Variable overhead efficiency variance was $1,000 favorable as less overhead than standard was incurred.

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53 views3 pages

Problem-1 (Materials, Labor and Variable Overhead Variances)

P&G uses standard costs to control costs of its detergent product. In August 2012: - Materials price variance was $4,000 favorable as materials were purchased for less than standard price. Materials quantity variance was $18,000 unfavorable as more materials than standard were used. - Labor rate variance was $1,600 unfavorable as actual labor costs exceeded the standard rate. Labor efficiency variance was $4,800 favorable as less labor than standard was used. - Variable overhead spending variance was $800 favorable as actual overhead spent was less than standard rate. Variable overhead efficiency variance was $1,000 favorable as less overhead than standard was incurred.

Uploaded by

Khim Ramos
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
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Problem-1 (Materials, labor and variable

overhead variances)
P&G company produces many products for household use. Company sells products to
storekeepers as well as to customers. Detergent-DX is one of the products of P&G. It is a
cleaning product that is produced, packed in large boxes and then sold to customers and
storekeepers.
P&G uses a traditional standard costing system to control costs and has established the following
materials, labor and overhead standards to produce one box of Detergent-DX:
Direct materials: 1.5 pounds @ $12 per pound

$18.00

Direct labor: 0.6 hours $24 per hour

$14.40

Variable manufacturing overhead: 0.6 hours @ $5.00 $3.00


$35.40
-

During August 2012, company produced and sold 3,000 boxes of Detergent-DX. 8,000 pounds
of direct materials were purchased @ $11.50 per pound. Out of these 8,000 pounds, 6,000
pounds were used during August. There was no inventory at the beginning of August. 1600 direct
labor hours were recorded during the month at a cost of $40,000. The variable manufacturing
overhead costs during August totaled $7,200.
Required:
1. Compute materials price variance and materials quantity variance. (Assume
that the materials price variance is computed at the time of purchase.)
2. Compute direct labor rate variance and direct labor efficiency variance.
3. Compute variable overhead spending variance and variable overhead
efficiency variance.

Solution:
(1) Materials variances:

= (8,000 pounds $11.50) (8,000 pounds $12)


= $92,000 $96,000
= $4,000 Favorable

= (6,000 pounds $12) (4,500 pounds $12)


= $72,000 $54,000
= $18,000 Unfavorable
(2)Labor variances:

= $40,000 (1,600 hours $24)


= $40,000 $38,400
= $1,600 Unfavorable

= (1,600 hours $24) (1,800 hours $24)


= $38,400 $43,200
=$4,800 Favorable

(3) Variable overhead variances:

= (1,600 hours $4.5) (1,600 hours $5)


= $7,200 $8,000
= $800 Favorable

= (1,600 hours $5) (1,800 hours $5)


= $1,000 Favorable

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