Part D - August Variance Analysis
During September of the current year, the controller was asked to perform variance analyses for August. The January operating data provided the standard prices, rates, times, and quantities per case. There were 1,200 cases produced during August, which was 50 more cases than planned at the beginning of the month. Actual data for August were as follows:
Actual Direct Materials
Price per Case Actual Direct Materials
Quantity per Case
Cream base $1.00 (for 72 ozs.) 75 ozs.
Natural Oils $6.20 (for 24 ozs.) 25 ozs.
Bottle (8-oz.) $4.50 (for 12 bottles) 12.2 bottles
Actual Direct
Labor Rate Actual Direct Labor
Time per Case
Mixing $ 15.25 16.50 min.
Filling $ 11.50 4.50 min.
Actual variable overhead $ 125
Normal volume 1,500 cases
The prices of the materials were different than standard due to fluctuations in the market prices. Specifically, the prices of the cream base and bottles were below the standard price, while the price of natural oils was above the standard price. The Mixing Department used a higher grade labor classification during the month, thus causing the actual labor rate to exceed standard. The Filling department used a lower grade labor classification during the month, thus causing the actual labor rate to be less than standard.
13. Determine and interpret the direct materials price and quantity variances for the three materials. Enter the costs in dollars and cents.
Direct Materials Price Variance
Cream Base Natural Oils Bottles
Actual price $
Standard price $
Difference $
Actual quantity (in cases)
Direct material price variance $
Indicate if favorable or unfavorable
Enter the standard price as dollar and cents but carry your answer to three decimals places. For example, $1.3458 would be entered as 1.346.
Direct Materials Quantity Variance
Cream Base Natural Oils Bottles
Actual quantity (ozs.)
Standard quantity (ozs.)
Difference
Standard price $
Direct material quantity variance $
Indicate if favorable or unfavorable
Interpret your results:
14. Determine and interpret the direct labor rate and time variances for the two departments. Enter your answers to two decimal places.
Direct Labor Rate Variance
Mixing Department Filling Department
Actual rate $
Standard rate $
Difference $
Actual time (in hours)
Direct labor rate variance $
Indicate if favorable or unfavorable
Direct Labor Time Variance
Mixing Filling
Actual time (in hours)
Standard time (in hours)
Difference
Standard rate $
Direct labor time variance $
Indicate if favorable or unfavorable
Interpret your results:
15. Determine and interpret the factory overhead controllable variance.
Actual variable overhead $
Variable overhead at standard cost $
Factory overhead controllable variance $
Indicate if favorable or unfavorable
Interpret your results.
16. Determine and interpret the factory overhead volume variance. When determining the fixed factory overhead rate, carry your answer to three decimal places. For example, 5.2786 would be entered as 5.279.
Normal volume (cases)
Actual volume (cases)
Difference
Fixed factory overhead rate $
Factory overhead volume variance $
Indicate if favorable or unfavorable
17. Why are there standard direct labor and direct materials costs in the calculations for parts (13) and (14) based on the actual 1,200-case production volume rather than the planned 1,150 cases of production used in the budgets for parts (9) and (10)?
Interpret your results.
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To solve part D, we need to calculate the direct materials price and quantity variances, the direct labor rate and time variances, the factory overhead controllable variance, and the factory overhead volume variance. Let's break down each part and explain how to get the solution.
13. Direct Materials Price and Quantity Variances:
To calculate the direct materials price variance, we need to multiply the actual quantity of each material by the difference between the actual price and the standard price. The formula is as follows:
Direct materials price variance = (Actual quantity x (Actual price - Standard price))
For the Cream Base:
Actual quantity = 75 ozs.
Standard price = $1.00 (standard price for 72 ozs.)
Actual price = $1.00 (given)
Direct materials price variance = (75 ozs. x ($1.00 - $1.00)) = $0.00
The direct materials price variance for Cream Base is $0.00 and is considered favorable.
For Natural Oils:
Actual quantity = 25 ozs.
Standard price = $6.20 (standard price for 24 ozs.)
Actual price = $6.20 (given)
Direct materials price variance = (25 ozs. x ($6.20 - $6.20)) = $0.00
The direct materials price variance for Natural Oils is $0.00 and is considered favorable.
For Bottles:
Actual quantity = 12.2 bottles
Standard price = $4.50 (standard price for 12 bottles)
Actual price = $4.50 (given)
Direct materials price variance = (12.2 bottles x ($4.50 - $4.50)) = $0.00
The direct materials price variance for Bottles is $0.00 and is considered favorable.
To calculate the direct materials quantity variance, we need to multiply the difference between the actual quantity and the standard quantity by the standard price. The formula is as follows:
Direct materials quantity variance = ((Actual quantity - Standard quantity) x Standard price)
For the Cream Base:
Actual quantity = 75 ozs.
Standard quantity = 72 ozs.
Standard price = $1.00 (standard price for 72 ozs.)
Direct materials quantity variance = ((75 ozs. - 72 ozs.) x $1.00) = $3.00
The direct materials quantity variance for Cream Base is $3.00 and is considered unfavorable.
For Natural Oils:
Actual quantity = 25 ozs.
Standard quantity = 24 ozs.
Standard price = $6.20 (standard price for 24 ozs.)
Direct materials quantity variance = ((25 ozs. - 24 ozs.) x $6.20) = $6.20
The direct materials quantity variance for Natural Oils is $6.20 and is considered unfavorable.
For Bottles:
Actual quantity = 12.2 bottles
Standard quantity = 12 bottles
Standard price = $4.50 (standard price for 12 bottles)
Direct materials quantity variance = ((12.2 bottles - 12 bottles) x $4.50) = $0.90
The direct materials quantity variance for Bottles is $0.90 and is considered unfavorable.
14. Direct Labor Rate and Time Variances:
To calculate the direct labor rate variance, we need to multiply the actual time by the difference between the actual rate and the standard rate. The formula is as follows:
Direct labor rate variance = (Actual time x (Actual rate - Standard rate))
For Mixing Department:
Actual time = 16.50 min.
Standard rate = $15.25 (given)
Actual rate = $15.25 (given)
Direct labor rate variance = (16.50 min. x ($15.25 - $15.25)) = $0.00
The direct labor rate variance for the Mixing Department is $0.00 and is considered favorable.
For Filling Department:
Actual time = 4.50 min.
Standard rate = $11.50 (given)
Actual rate = $11.50 (given)
Direct labor rate variance = (4.50 min. x ($11.50 - $11.50)) = $0.00
The direct labor rate variance for the Filling Department is $0.00 and is considered favorable.
To calculate the direct labor time variance, we need to multiply the actual time difference by the standard rate. The formula is as follows:
Direct labor time variance = ((Actual time - Standard time) x Standard rate)
For Mixing Department:
Actual time = 16.50 min.
Standard time = Not given
Standard rate = $15.25 (given)
Direct labor time variance = ((16.50 min. - Not given) x $15.25) = Not calculable without the standard time
For Filling Department:
Actual time = 4.50 min.
Standard time = Not given
Standard rate = $11.50 (given)
Direct labor time variance = ((4.50 min. - Not given) x $11.50) = Not calculable without the standard time
15. Factory Overhead Controllable Variance:
To calculate the factory overhead controllable variance, we subtract the variable overhead at standard cost from the actual variable overhead cost. The formula is as follows:
Factory overhead controllable variance = (Actual variable overhead - Variable overhead at standard cost)
Actual variable overhead = $125 (given)
Variable overhead at standard cost = Not given
Factory overhead controllable variance = ($125 - Not given) = Not calculable without the variable overhead at standard cost
16. Factory Overhead Volume Variance:
To calculate the factory overhead volume variance, we subtract the actual volume from the normal volume and multiply the difference by the fixed factory overhead rate. The formula is as follows:
Factory overhead volume variance = ((Normal volume - Actual volume) x Fixed factory overhead rate)
Normal volume = 1,500 cases (given)
Actual volume = 1,200 cases (given)
Fixed factory overhead rate = Not given
Factory overhead volume variance = ((1,500 cases - 1,200 cases) x Not given) = Not calculable without the fixed factory overhead rate
17. The standard direct labor and direct materials costs are based on the actual 1,200-case production volume rather than the planned 1,150 cases because the variance analysis requires a comparison between actual performance and the standard set for that period. The actual production volume of 1,200 cases reflects the actual level at which the company operated and provides a more accurate basis for evaluating the variances.
Please note that without the missing data (standard time, Variable overhead at standard cost, and Fixed factory overhead rate), we are unable to calculate the respective variances and provide an interpretation for them.