Connect Access Card For Fundamental Accounting Principles
Connect Access Card For Fundamental Accounting Principles
24th Edition
ISBN: 9781260158526
Author: John J Wild
Publisher: McGraw-Hill Education
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Chapter 23, Problem 4BPSB
To determine

Variance:

Variance is the difference between the actual cost and budgeted cost for particular level of activity. It is computed by deducting the budgeted cost from the actual cost of the production.

Direct Material Cost Variance:

The difference between the actual cost incurred on the direct material and the budgeted cost expected to be incurred is called the direct material cost variance. It can either calculated by deducting the budgeted cost from the actual cost or adding the direct material price variance and direct material quantity variance.

Direct Labor Cost Variance:

The variance between the actual labor cost incurred and the budgeted labor cost is termed as direct labor cost variance. It can be computed by deducting the budgeted labor cost from the actual cost. On the contrary, it can also be ascertained by adding the direct labor rate variance and direct labor efficiency variance.

Controllable Variance:

The overall variance which comprises of variable overhead spending and efficiency variance and the fixed overhead spending and volume variance is called the controllable variance. It is basically the combination of variable and fixed overhead which the management of a company can influence.

Volume Variance:

The variance which arises due to difference in the budgeted level of activity and the actual level is called volume variance. The sole reason for this kind of variance is the variation in the level of activity.

1. Computation of direct materials cost variance with its price and quantity variances.

2. Computation of direct labor cost variance with its rate and efficiency variances.

3. Computation of overhead controllable and volume variances.

Expert Solution & Answer
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Answer to Problem 4BPSB

Solution:

1. Kryll Company has unfavorable variance in direct material cost variance of $50,000 with unfavorable price variance of $250,000 and favorable quantity variance of $200,000.

2. Direct labor cost variance is $78,500 (F) with both favorable variance in rate of $62,500 and efficiency of $16,000.

3. The company has unfavorable variance of $136,000 in controllable variance and unfavorable variance of $252,000 in volume variance.

Explanation of Solution

1. Computation of direct materials cost variance with its price and quantity variances.

2. Computation of direct labor cost variance with its rate and efficiency variances.

  Direct Labor Rate Variance = Actual Hours X (Actual Rate  Standard Rate)                                            = 250,000 hours X ($7.75  $8.00)                                            = $62,500 Favorable

  Direct Labor Efficiency Variance = Standard Rate X ( Actual Hours  Standard Hours)                                                     = $8.00 X ( 250,000 hours  252,000 hours)                                                     = $16,000 FavorableDirect Labor Cost Variance= Direct Labor Rate Variance + Direct Labor Efficiency Variance= $62,500 + $16,000= $78,500Favorable

3. Computation of overhead controllable and volume variances.

  Overhead Controllable Variance= Actual Factory Overhead Cost  Budgeted Factory Overhead Cost = (Fixed overhead cost + Variable overhead cost)  (Standard Hours X Standard Rate)= ($1,960,000 + $1,200,000)  (252,000 hours X $12.00)= $3,160,000  $3,024,000= $136,000 Unfavorable

  Overhead Volume Variance =Budgeted Fixed Overhead  Applied Fixed Overhead                                                = $2,016,000  (Standard hours X Standard Rate)                                                = $2,016,000  (252,000 hours X $7)                                                = $252,000  Unfavorable

Conclusion

The direct material price variance is $250,000 Unfavorable

The direct material quantity variance is $200,000 Favorable

The direct material cost variance is $50,00 Unfavorable

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Chapter 23 Solutions

Connect Access Card For Fundamental Accounting Principles

Ch. 23 - Prob. 11DQCh. 23 - Prob. 12DQCh. 23 - Prob. 13DQCh. 23 - How can the manager of advertising sales at Google...Ch. 23 - Prob. 15DQCh. 23 - Prob. 16DQCh. 23 - Is it possible to evaluate a cost center’s...Ch. 23 - Prob. 18DQCh. 23 - Prob. 1QSCh. 23 - Prob. 2QSCh. 23 - Prob. 3QSCh. 23 - Prob. 4QSCh. 23 - Prob. 5QSCh. 23 - Prob. 6QSCh. 23 - Prob. 7QSCh. 23 - Prob. 8QSCh. 23 - Prob. 9QSCh. 23 - Prob. 10QSCh. 23 - Prob. 11QSCh. 23 - Prob. 12QSCh. 23 - Prob. 13QSCh. 23 - Prob. 14QSCh. 23 - Volume variance P3 Refer to information in QS...Ch. 23 - Prob. 16QSCh. 23 - Prob. 17QSCh. 23 - Prob. 18QSCh. 23 - Prob. 19QSCh. 23 - Prob. 20QSCh. 23 - Prob. 21QSCh. 23 - Prob. 22QSCh. 23 - Prob. 23QSCh. 23 - Prob. 24QSCh. 23 - Exercise 23-1 Management by exception C1 Resset...Ch. 23 - Prob. 2ECh. 23 - Exercise 23-2 Preparing flexible budgets P1 Tempo...Ch. 23 - Prob. 4ECh. 23 - Prob. 5ECh. 23 - Prob. 6ECh. 23 - Prob. 7ECh. 23 - Prob. 8ECh. 23 - Prob. 9ECh. 23 - Prob. 10ECh. 23 - Prob. 11ECh. 23 - Prob. 12ECh. 23 - Exercise 23-13 Computing and interpreting...Ch. 23 - Prob. 14ECh. 23 - Exercise 23-15 Direct materials and direct labor...Ch. 23 - Prob. 16ECh. 23 - Prob. 17ECh. 23 - Exercise 23-18A Detailed overhead variances P5...Ch. 23 - Prob. 19ECh. 23 - Prob. 20ECh. 23 - Prob. 21ECh. 23 - Prob. 22ECh. 23 - Prob. 23ECh. 23 - Prob. 1APSACh. 23 - Prob. 2APSACh. 23 - Prob. 3APSACh. 23 - Prob. 4APSACh. 23 - Prob. 5APSACh. 23 - Prob. 6APSACh. 23 - Prob. 2BPSBCh. 23 - Prob. 3BPSBCh. 23 - Prob. 4BPSBCh. 23 - Prob. 5BPSBCh. 23 - Prob. 6BPSBCh. 23 - Prob. 23SPCh. 23 - Flexible budgets and standard costs emphasize the...Ch. 23 - Prob. 2AACh. 23 - Prob. 3AACh. 23 - Prob. 1BTNCh. 23 - Prob. 2BTNCh. 23 - Prob. 3BTNCh. 23 - Prob. 4BTNCh. 23 - Prob. 5BTNCh. 23 - Training employees to use standard amounts of...
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What is variance analysis?; Author: Corporate finance institute;https://www.youtube.com/watch?v=SMTa1lZu7Qw;License: Standard YouTube License, CC-BY