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P2

Seminar Five Tuesday Problems
P2. Direct Materials and Direct Labor Variances
1. Direct materials price variance
Direct Materials
Mylar
(ounces)
Price difference:
Standard price
Less actual price
Difference in price
Direct Materials Price Variance = ( Standard Price − Actual Price ) × Actual Quantity
=
=
Direct materials quantity variance:
Direct Materials
Mylar
(ounces)
Quantity difference:
Standard quantity
Less actual quantity used
Difference in quantity
Direct Materials Quantity Variance = Standard Price × ( Standard Quantity − Actual Quantity )
=
=
Diagram Form:
Actual Direct Materials Purchased (Actual Price × Actual Quantity) $0.028 × 602,000 = $16,856 Materials Inventory (Standard Price × Actual Quantity) $0.030 × 602,000 = $18,060 Work in Process Inventory (Standard Price × Standard Quantity) $0.030 × (200,600 × 3) = $18,054
Direct Materials Price Variance $1,204  (F) Direct Materials Quantity Variance $6  (U)
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P2. Direct Materials and Direct Labor Variances (Concluded)
2. Direct labor rate variance
Rate difference:
Standard rate
Less actual rate
Difference in rate
Direct Labor Rate Variance = ( Standard Rate − Actual Rate ) × Actual Hours
=
=
Direct labor efficiency variance:
Efficiency difference:
Standard hours allowed
Less actual hours
Difference in hours
Direct Labor Efficiency Variance = Standard Rate × ( Standard Hours Allowed − Actual Hours )
Diagram Form:
Actual Wages Paid (Actual Rate × Actual Hours) Labor Budget Based on Actual Hours (Standard Rate × Actual Hours) Work in Process Inventory (Standard Rate × Standard Hours)
Direct Labor Rate Variance Direct Labor Efficiency Variance

P4

P4. Overhead Variances
a. Actual Variable Overhead = ( Standard Rate × Actual Hours ) − Favorable Variable
Overhead Spending Variance
=
b. Variable Overhead = ( Standard Rate × Standard Hours Allowed) −
Efficiency Variance ( Standard Rate × Actual Hours )
=
c. Actual Fixed Overhead = Budgeted Fixed Overhead + Unfavorable Fixed Overhead
Budget Variance
=
=
d. Normal Capacity in = Budgeted Fixed Overhead / Standard Fixed Overhead Rate
Machine Hours
=
=
e. Standard Fixed Overhead Rate = Fixed Overhead Applied
Standard Machine Hours Allowed
=
=
f. Fixed Overhead Applied = Budgeted Fixed Overhead + Favorable Fixed Overhead
Volume Variance
=
=
Note to Students: (f) must be solved first, then (e), and then (d).
Diagram Form:
Actual Variable Overhead Costs (a) Budgeted Variable Overhead Costs (Standard Rate × Actual Hours) Variable Overhead Costs Applied (Standard Rate × Standard Hours Allowed)
Variable Overhead Spending Variance Variable Overhead Efficiency Variance (b)
Actual Fixed Overhead Costs (c) Budgeted Fixed Overhead Costs (Given) Fixed Overhead Costs Applied (f) (Standard Rate × Standard Hours Allowed) = $157,500
Fixed Overhead Budget Variance Fixed Overhead Volume Variance