Part C: Variance Analysis for Decision Making Bronfenbrenner Co. uses a standard cost system for its...

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Part C: Variance Analysis for Decision Making Bronfenbrenner Co. uses a standard cost system for its single product in which variable overhead is applied on the basis of direct labor hours. The following information is given: Standard costs per unit: Raw materials (1.5 grams at $16 per gram) ............................ $24.00 Direct labor (0.75 hours at $8 per hour).................................. $6.00 Variable overhead (0.75 hours at $3 per hour)........................ $2.25 Actual experience for current year: Units produced ..................................................... XXXXXXXXXX22,400 units Purchases of raw materials (21,000 grams at $17 per gram) .. $357,000 Raw materials used............................................... XXXXXXXXXX33,400 grams Direct labor (16,750 hours at $8 per hour).............................. $134,000 Variable overhead cost incurred.............................................. $48,575 Required: Compute the following variances for raw materials, direct labor, and variable overhead, assuming that the price variance for materials is recognized at point of purchase: a. Direct materials price variance. b. Direct materials quantity variance. c. Direct labor rate variance. d. Direct labor efficiency variance. e. Variable overhead spending variance. f. Variable overhead efficiency variance. g. As a manager, why is variance analysis important?

Ayushi · Accepted Answer

1
Variance analysis
Contents
a.	Material Price Variance:	3
b.	Material Quantity Variance:	3
c.	Direct Labour Rate Variance:	3
d.	Direct Labour Efficiency Variance:	3
e.	Variable Overhead Spending Variance:	3
f.	Variable Overhead Efficiency Variance:	3
g.	Importance of variance analysis:	4
References:	5
a. Material Price Variance:
Formula: (Standard Price – Actual Price)*Actual Quantity Purchased
Material Price Variance: (16-17)*21000
Therefore the material price variance is $21000 Unfavorable.
b. Material Quantity Variance:
Formula: (Standard Quantity – Actual Quantity used)* Standard Rate	
Material Quantity Variance: (22400*1.50 – 33400)*16
Therefore the Material Quantity Variance is $3200 Favorable.
c. Direct Labor Rate Variance:
Formula: (Standard Rate per hour – Actual Rate per Hour)*Actual hours worked
Direct Labor Rate Variance: (8-8)*16750
Therefore the Direct Labor Rate Variance is $0.
d. Direct Labor Efficiency Variance: 
Formula: (Standard hours – Actual hours worked)*Standard rate
Direct Labor Efficiency Variance: (22400*0.75 – 16750)*8
Therefore the Direct Labor Efficiency Variance is $400 Favorable.
e. Variable Overhead Spending Variance:
Formula:

Part C: Variance Analysis for Decision Making Bronfenbrenner Co. uses a standard cost system for its single product in which variable overhead is applied on the basis of direct labor hours. The...

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