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-   -   Computation of materials, labor, and overhead variances; and overhead variance report (https://www.askmehelpdesk.com/showthread.php?t=588355)

  • Jul 19, 2011, 04:32 PM
    moonkhan209
    computation of materials, labor, and overhead variances; and overhead variance report
    computation of materials, labor, and overhead variances; and overhead variance report

    I have to Compute the direct materials cost variance, including its price and quantity variances
    According to the following question, I calculated the price variance which is = (46500x5.20)-(46500x5)=9300 but confused about quantity varience.I came up with =(46500x5)-(20000x3x5)=67500.butthe quantity varience is wrong,I don't know and confused what Please let me know what mistake I am making. Thanks
    Kwikeze Company set the following standard costs for one unit of its product.

    Direct materials ((3.0 Ibs. @ $5.0 per Ib.) $ 15.00
    Direct labor (1.9 hrs. @ $10.0 per hr.) 19.00
    Overhead (1.9 hrs. @ $18.50 per hr.) 35.15

    Total standard cost $ 69.15


    The predetermined overhead rate ($18.50 per direct labor hour) is based on an expected volume of 75% of the factory's capacity of 20,000 units per month. Following are the company's budgeted overhead costs per month at the 75% level.


    Overhead Budget (75% Capacity)
    Variable overhead costs
    Indirect materials $ 30,000
    Indirect labor 75,000
    Power 30,000
    Repairs and maintenance 30,000

    Total variable overhead costs $ 165,000
    Fixed overhead costs
    Depreciation—building 25,000
    Depreciation—machinery 72,000
    Taxes and insurance 18,000
    Supervision 247,250


    Total fixed overhead costs 362,250


    Total overhead costs $ 527,250




    The company incurred the following actual costs when it operated at 75% of capacity in October.


    Direct materials (46,500 Ibs. @ $5.20 per lb.) $ 241,800
    Direct labor (28,000 hrs. @ $10.30 per hr.) 288,400
    Overhead costs
    Indirect materials $ 46,000
    Indirect labor 176,500
    Power 34,500
    Repairs and maintenance 34,500
    Depreciation—building 25,000
    Depreciation—machinery 97,200
    Taxes and insurance 16,200
    Supervision 247,250 677,150

    Total costs $ 1,207,350


  • Jul 19, 2011, 08:28 PM
    Just Looking

    The quantity variance formula is:
    (actual quantity used x standard price) - (standard quantiy allowed x standard price)

    You are on the right track. Your only mistake is that you are using 20,000 which is the number of units. However, each unit requires 3 pounds of material in your standard calculation.
  • Jul 19, 2011, 09:48 PM
    moonkhan209
    Comment on Just Looking's post
    Yeah, But I am multiplying this 20000 with 3 to get the standard quantity and than multiplied it with standard price which is 5. You think I am right?
  • Jul 19, 2011, 10:06 PM
    Just Looking

    Sorry - somehow I missed that 3 in your equation. The only problem I see is that you show it as 67,500 not -67,500.

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