Absolutely! Let's break down the requirements step by step and explain each part clearly. --- ### **Step 1: Understanding the Data** #### **Standard Costs (per unit at 80% capacity, i.e., 40,000 units):** - **Direct Materials:** 5 lbs @ $4/lb = $20.00 - **Direct Labor:** 2 hours @ $8.75/hour = $17.50 - **Variable Overhead:** 2 hours @ $3/hour = $6.00 - **Fixed Overhead:** 2 hours @ $7/hour = $14.00 - **Total Cost per Unit:** $57.50 #### **Actual Production (60% of capacity):** - **Capacity:** 50,000 units (since 40,000 is 80%, so 40,000 / 0.8 = 50,000) - **Actual Production:** 60% x 50,000 = **30,000 units** #### **Actual Costs:** - Direct Materials: 150,350 lbs | $616,435 - Direct Labor: 59,800 hours | $520,260 - Variable Overhead: $192,000 - Fixed Overhead: $552,000 --- ## **a. Variance Calculations** ### **i. Direct Materials Variances** - **Standard for 30,000 units:** 5 lbs/unit × 30,000 = **150,000 lbs** - **Standard Price:** $4/lb - **Actual Quantity Used:** 150,350 lbs - **Actual Cost:** $616,435 - **Actual Price per lb:** $616,435 / 150,350 = **$4.10/lb** #### **a. Price Variance** > (Actual Price - Standard Price) × Actual Quantity > = ($4.10 - $4.00) × 150,350 = **$15,035 Unfavorable (U)** #### **b. Quantity Variance** > (Actual Quantity - Standard Quantity Allowed) × Standard Price > = (150,350 - 150,000) × $4.00 = **$1,400 U** #### **c. Volume Variance** > (Actual Output - Budgeted Output) × Standard Input per unit × Standard Price > = (30,000 - 40,000) × 5 × $4 = (-10,000) × 5 × $4 = **-$200,000 Favorable (F)** > (But usually, the volume variance is part of overhead, not materials. So, you can skip it for materials.) --- ### **ii. Direct Labor Variances** - **Standard Hours for 30,000 units:** 2 × 30,000 = **60,000 hours** - **Actual Hours:** 59,800 - **Standard Rate:** $8.75/hour - **Actual Rate:** $520,260 / 59,800 = **$8.70/hour** #### **a. Rate Variance** > (Actual Rate - Standard Rate) × Actual Hours > = ($8.70 - $8.75) × 59,800 = **-$2,990 Favorable (F)** #### **b. Efficiency Variance** > (Actual Hours - Standard Hours Allowed) × Standard Rate > = (59,800 - 60,000) × $8.75 = **-$1,750 F** #### **c. Volume Variance** > (Actual Output - Budgeted Output) × Standard Hours per unit × Standard Rate > = (30,000 - 40,000) × 2 × $8.75 = -10,000 × 2 × $8.75 = **-$175,000 F** > (Again, typically not calculated for labor; focus on rate and efficiency.) --- ### **iii. Variable Overhead Variances** - **Standard Variable Overhead Rate:** $3/hour - **Standard Hours for Actual Output:** 60,000 hours - **Actual Variable Overhead:** $192,000 - **Actual Hours:** 59,800 #### **a. Rate Variance** > (Actual Rate - Standard Rate) × Actual Hours > Actual Rate = $192,000 / 59,800 = $3.21 > Rate Variance = ($3.21 - $3.00) × 59,800 = $0.21 × 59,800 = **$12,558 U** #### **b. Efficiency Variance** > (Actual Hours - Standard Hours Allowed) × Standard Rate > = (59,800 - 60,000) × $3 = -200 × $3 = **-$600 F** #### **c. Volume Variance** > (Actual Output - Budgeted Output) × Standard Hours per unit × Standard Rate > = (30,000 - 40,000) × 2 × $3 = -10,000 × 2 × $3 = **-$60,000 F** > (Typically part of overhead analysis.) --- ### **iv. Fixed Overhead Variances** - **Budgeted Fixed Overhead:** $14 × 40,000 = $560,000 (but total expected overhead is $800,000 × 70% = $560,000 as fixed) - **Actual Fixed Overhead:** $552,000 #### **a. Spending (Budget) Variance** > Actual Fixed Overhead - Budgeted Fixed Overhead > = $552,000 - $560,000 = **-$8,000 F** #### **b. Volume Variance** > (Actual Output - Budgeted Output) × Standard Hours per unit × Fixed Overhead Rate > = (30,000 - 40,000) × 2 × $7 = -10,000 × 2 × $7 = **-$140,000 U** --- ## **b. Brief Explanation of Fixed Overhead Variances** - **Spending (Budget) Variance:** Measures the difference between actual and budgeted fixed overhead. If actual is less, it's favorable. - **Volume Variance:** Measures the cost of unused capacity; unfavorable if you produced less than expected (because fixed costs are spread over fewer units). --- ## **c. Recompute Direct Materials Price Variance (if purchased = 160,210 lbs):** - **Actual Price per lb:** $616,435 / 160,210 = $3.85/lb - **Price Variance:** ($3.85 - $4.00) × 160,210 = -$0.15 × 160,210 = **-$24,031.50 F** --- ## **d. Journal Entries for the Variances** 1. **Direct Materials Purchased** - Dr. Raw Materials Inventory (at actual cost) - Cr. Accounts Payable (at actual cost) - **Dr. Raw Materials Inventory $616,435** - **Cr. Accounts Payable $616,435** 2. **Direct Materials Used** - Dr. Work in Process Inventory (at standard cost) - Dr./Cr. Direct Materials Quantity Variance (to balance) - Cr. Raw Materials Inventory (at actual quantity × standard price) - **Dr. Work in Process Inventory $600,000** (150,000 lbs × $4) - **Dr. Direct Materials Quantity Variance $1,400** - **Cr. Raw Materials Inventory $601,400** (actual used × standard price) 3. **Direct Labor Incurred** - Dr. Work in Process Inventory (at standard cost) - Dr./Cr. Labor Rate & Efficiency Variances - Cr. Wages Payable (at actual cost) - **Dr. Work in Process Inventory $525,000** (60,000 × $8.75) - **Dr. Labor Rate Variance $2,990** - **Cr. Labor Efficiency Variance $1,750** - **Cr. Wages Payable $520,260** (actual cost) --- ### **Let me know if you want the calculations shown in a table or diagram! Or if you have more questions about any specific part!**