Comprehensive 11-21 Standard Cost Variances
1. Redo the standard cost card in a clearer, more usable format by detailing the variable and
fixed overhead cost elements.
Standard
Standard
Price
Quantity
Direct materials (pounds)
Direct labor (direct labor hours)
Variable overhead
Fixed
Overhead
Standard cost per unit
Standard
Cost
4
2
2
$2.60
$9
$3.80
$10.40
$18.00
$7.60
2
$7.00
$14.00
$50.00
2. Prepare an analysis of the variances for materials and labor for the year.
Direct Materials
Actual Costs
30,000 X
$2.50
30,000 X
$2.60
$75,000
$78,000
($3,000)F
Direct Materials
Actual Costs
20,000 X
$2.50
20,000 X
$2.60
$50,000
$52,000
($2,000)F
Direct Labor
4,800 X 4 X $2.60
$49,920
$2,080U
Actual Costs
10,000 X
$8.60
10,000 X
$9.00
$86,000
$90,000
($4,000)F
4,800 X 2 X $9
$86,400
$3,600
3. Prepare an analysis of the variances for variable and fixed overhead for the year.
4. What effect, if any, does the choice of a denominator activity level have on standard unit
costs? Is the volume variance a controllable variance from a spending point of view? Explain.
Denominator =
9,600
Standard
Quantity
Direct (pounds)
Direct materials labor (direct labor hours)
Variable overhead 120% of DML $)
Overhead, 120% of DML cost
Standard cost per unit
Standard
Price
4
2
2
2
$2.60
$9
$3.56
$6.56
Standard
Cost
$10.40
$18.00
$7.13
$13.13
$48.65
The volume variance cannot be controlled by controlling spending. Rather, the volume
variance simply reflects whether actual activity was greater of less than the denominator
activity. Thus, the volume variance is controllable only through controlling activity.
11-22 Flexible Budgets and Overhead Analysis
1. Prepare a manufacturing overhead flexible budget for the Finishing Department using
increments of 10,000 hours. (The company does not include direct materials and direct
materials and labor costs in the flexible budget).
2. Assume that the company computes predetermined overhead rates by department. Compute
the rates, variable and fixed, that will be used to apply Finishing Department overhead costs to
production.
3. Suppose that during the year the following actual activity and costs are recorded in the
finishing department.