Problem 3
The following raw materials quantities and prices at standard are estimated to produce 2,000 pounds of
the finished product:
Material E 1,500 pounds at P 0.300 = P 450.00
Material T 500 pounds at P 0.200 = 100.00
Material C 400 pounds at P 0.425 = 170.00
2,400 P 720.00
Actual quantities of raw materials used: (10,000 finished goods)
Material E 8,000 pounds at P 0.320 = P 2,560.00
Material T 2,400 pounds at P 0.180 = 432.00
Material C 2,800 pounds at P 0.450 = 1,260.00
13,200 P 4,252.00
REQUIRED: Compute the material mix and yield variances.
Solution:
Material Mix Variance
Actual Quantity x Standard price
Material E (8,000 pounds x P 0.300 per pound) P 2,400
Material T (2,400 pounds x P 0.200 per pound) 480
Material C (2,800 pounds x P 0.425 per pound) 1,190 P 4,070
Less: Actual Input at Average Standard Price* 3,960
Unfavorable Mix Variance P 110
* Total actual quantities (Total standard price / Total standard quantities)
13,200 (720/2,400) = P 3,960
Material Yield Variance
Total Actual Input at Average Standard Price P 3,960
Less: Total actual output at standard raw materials cost
(10,000 x 0.36**) 3,600
Unfavorable Yield Variance P 360
** Standard Material Cost = P 720 / 2,000 = P 0.36
Problem 4 (Comprehensive Variance Analysis; Journal Entries)
Moda Mills, Inc., is a large producer of men’s and women’s clothing. The company uses standard costs for all
of its products. The standard costs and actual costs for a recent period are given below for one of the
company’s product lines (per unit of product):
Standard Cost Actual Cost
Direct materials:
Standard: 4.0 yards at P3.60 per yard……………….. P 14.40
Actual: 4.4 yards at P3.35 per yard……………….. P 14.74
Direct Labor:
Standard: 1.6 hours at P4.50 per hour……………….. 7.20
Actual: 1.4 hours at P4.85 per hour……………….. 6.79
Variable manufacturing overhead:
Standard: 1.6 hours at P1.80 per hour……………….. 2.88
Actual: 1.4 hours at P2.15 per hour……………….. 3.01
Total cost per unit…………………………………………………………. P 24.48 P24.54
ssss
During the period, the company produced 4,800 units of product. A comparison of standard and actual
costs for the period on a total cost basis is shown below:
Actual costs: 4,800 units at P24.54 ………………… P117,792
Standard costs: 4,800 units at P24.48 ……………. 117,504
Difference in cost – unfavorable ……………………………… P 288
There was no inventory of materials on hand to start the period. During the period, 21,120 yards of
materials were purchased, all of which were used in production.
REQUIRED 1. For direct materials:
a. Compute the price and quantity variances for the period.
b. Prepare journal entries to record all activity relating to direct materials for the period.
Required: 1a.
Materials Price Variance = AQ (AP - SP)
21,120 yards (P 3.35 per yard – P 3.60 per yard) (P 5,280) Favorable
Materials Quantity Variance = SP (AQ - SQ)
Unfavorabl
P 3.60 per yard (21,120 – 19,200*) P 6,912 e
*4,800 units x 4.0 yards per unit = 19,200 yards
Required 1b.
Raw materials (21,120 yards x P 3.60 per yard) P 76,032
Materials price variance P 5,280
Accounts Payable (21,120 x P 3.35) 70,752
Work in Process (19,200 x P3.60) P 69,120
Materials Quantity Variance
6,912
Raw Materials (21,120 x P 3.60) P 76,032
REQUIRED 2. For direct labor:
a. Compute the rate and efficiency variances.
b. Prepare the journal entry to record the incurrence of direct labor for the period.
Requirement 2a.
Labor Rate Variance = AH ( AR – SR)
6, 720* (P 4.85 per hr. – P 4.50 per hr.) P 2,352 Unfavorable
Labor Efficiency Variance = SR (AH – SH)
P 4.50 per hr. (6,720 – 7,680**) (P 4,320) Favorable
*4,800 units x 1.4 hrs. per unit = 6,720 hrs.
**4,800 units x 1.6 hrs. per unit = 7,680 hrs.
Requirement 2b:
Work in Process (7,680 x P 4.50) P 34,560
Labor rate variance 2,352
Labor efficiency variance P 4,320
Wages payable (6,720 x P 4.85) 32,592
REQUIRED 3: Compute the variable manufacturing overhead spending and efficiency variances.
Variable Overhead Spending Variance = AH (AR - SR)
6,720 hours x (P 2.15 per hr. – P 1.80 per hr.) P 2,352 Unfavorable
Variable Overhead Efficiency Variance = SR (AH - SH)
P1.80 per hour x (6,720 – 7,680) (P 1,728) Favorable
REQUIRED 4: On seeing the P 288 total cost variance, the company’s president stated,
“This variance of P 288 is only 0.2% of the P177,504 standard cost for the period.
It’s obvious that our cost are well under control.” Do you agree? Explain.
No. This total variance is made up of several quite large individual variances, some of
which may warrant investigation.
Material:
Price variance P5,280F
Quantity variance
6,912U P 1,632 U
Labor:
Rate variance 2,352U
Efficiency variance 4,320 F 1,968 F
Variable Overhead:
Spending variance 2,352 U
Efficiency variance 1,728 F
Net Unfavorable Variance P 288 U
Required 5: State possible causes of each variance that you have computed.
Material variances:
Favorable price variances: Fortunate buy, inaccurate standards, inferior quality materials, unusual
discount due to quantity purchased, drop in the marketplace
Unfavorable quantity variance: Carelessness, poorly adjusted machines, unskilled workers, inferior
quality materials, and inaccurate standards.
Labor variances:
Unfavorable rate variance: Use of highly skilled workers, change in wage rates, inaccurate standards,
overtime.
Favorable efficiency variance: Use of highly skilled workers, high-quality materials, new equipment,
inaccurate standards.
Variable overhead variances:
Unfavorable spending variance: Increase in costs, inaccurate standards, waste, theft, spillage, and
purchases in uneconomical lots.
Favorable efficiency variance: Same as for labor efficiency variance.
