Homework Week 4

ACCT 321
1. What is the formula used to calculate the Materials Price Variance?
Solution:
Materials Price Variance = Actual Quantity x Actual Price - Actual Quantity x
Standard Price
OR
Materials Price Variance = Actual Cost - Standard Cost of Actual Quantity
2. What is the formula used to calculate materials quantity variance (also called direct
materials usage variance)?
Solution:
= Actual Quantity x Standard Price - Standard Quantity x Standard Price
OR
= Standard Cost of Actual Quantity - Standard Cost of Standard Quantity
OR
= (Actual Quantity - Standard Quantity) x Standard Price
3. What is the formula used to calculate direct labor rate variance?
Solution:
= Actual Quantity x Actual Rate - Actual Quantity x Standard Rate
4. What is the formula used to calculate direct labor efficiency variance (also called quantity
or usage variance).
Solution:
= Actual Hours x Standard Rate - Standard Hours x Standard Rate
5. What is the formula used to calculate factory overhead controllable variance?
Solution:
Controllable variance = Actual Factory Overhead - Budgeted Allowance Based on
Standard Hours Allowed
6. What is the formula used to calculate Factory overhead spending variance?
Solution:
Actual hours worked x (Actual overhead rate - standard overhead rate)
= Variable overhead spending variance
7. What is the formula used to calculate variable overhead efficiency variance?
Solution:
Standard overhead rate x (Actual hours - standard hours)
= Variable overhead efficiency variance
8. Morning Time Bakery produces specialty coffee machines. Morning Time uses a standard
cost system.

Data regarding production during August are as follows:

Variable Manufacturing overhead costs incurred

$155,100

Variable Manufacturing overhead cost rate

$12 per standard

machine hour

Fixed manufacturing overhead costs incurred

$401,000

Fixed manufacturing overhead budgeted

$390,000

Denominator level in machine-hours (Budget)

13,000

Standard machine-hour allowed per unit of output

.3

Units of output

41,000

Actual machine-hours used

13,300

Ending Work-in-process inventory

Using the 4-variance method calculate all (variable and fixed) manufacturing overhead
variances. Indicate F for favorable, and U for unfavorable.
Solution:
1. Spending Variance
Fixed overhead spending variance = Actual fixed overhead - Budgeted fixed overhead
= 401,000 390,000
= $ 11,000 (F)
2. Idle Capacity Variance
Idle capacity variance = Budgeted allowance based on actual hours worked - (Actual
hours worked Standard overhead rate)

= 390,000 - (13,300 x 12)

= 390,000 159,600
= 230,400 (U)
3. Variable Efficiency Variance
Variable overhead efficiency variance = Standard overhead rate x (Actual hours standard hours)
= 12 x (13,300 13,000)
= 12 x 300
= 3,600 (U)
4. Fixed Efficiency Variance
Fixed overhead efficiency variance = (Actual hours Fixed overhead rate) - (Standard
hours allowed Fixed overhead rate)
= (13,300 x 9.78) (13,000 x 9.78)
= 130,074 127,140
= 2,934 (F)
9. Company ABC has estimated its sales budget at 500,000 units for the quarter ending
December 30, 20X5. ABC expects sales for October, November, December are 37.5%,
25%, and 37.5% of the total, respectively. The desired finished goods inventories are as
follows:
October 1
October 31
November 30
December 31

90,000 units
87,500 units
93,000 units
95,000 units

Prepare a production budget for the first last quarter 20X5.

Solution:
Oct. 20X5

Nov. 20X5

Dec.20X5

Forecasted unit sales

187,500

125,000

187,500

+ Planned ending inv. Units

87,500

93,000

95,000

= Total production required

275,000

228,000

282,500

- Beginning F/G inventory

= Units to be manufactured

90,000

87,000

93,000

185,000

141,000

189,500