Solution-a

Material A
Direct Material Price Variance = (Actual Price - Standard Price)*Actual Quantity
Actual Price $0.19
Standard Price $0.20
Actual Quantity 24,500 pounds
Price Variance -$245 Favorable

Direct Material Usage Variance = (Actual Quantity-Standard Quantity)*Standard Price

Actual Quantity 24,500 pounds
Standard Quantity $24,000
Standard Price $0.20
Usage Variance 100 Unfavorable

Material B
Direct Material Price Variance = (Actual Price - Standard Price)*Actual Quantity
Actual Price $0.41
Standard Price $0.40
Actual Quantity 5,900 pounds
Price Variance $59 Unfavorable

Direct Material Usage Variance = (Actual Quantity-Standard Quantity)*Standard Price

Actual Quantity 5,900 pounds
Standard Quantity 6,000
Standard Price $0.40
Usage Variance -$40 Favorable

Direct Labor Rate Variance = (Actual Rate - Standard Rate) X Actual Hours
Actual Hours 300
Actual Rate $16
Standard Rate $15
Rate Variance $300 Unfavorable

Direct Labor Efficiency Variance = (Actual Hours - Standard Hours)*Standard Rate

Actual Hours 300
Standard Hours 240
Standard Rate 15
Efficiency Variance 900 Unfavorable

Controllable overhead variance = Actual overhead - flexible budged based on actual production
Actual overhead 15500
Flexible budget 16000
 Controllable overhead variance -$500.00 Favorable

Overhead volume variance = Flexible budget - Overhead Applied

Flexible Budget 16000
Overhead applied 12000
Volume variance 4000 Unfavorable

Solution-b
Summary of variances
Material A price variance -$245 Favorable
Material B price variance 100 Unfavorable
Material A quantity variance $59 Unfavorable
Material B quantity variance -$40 Favorable
Labor rate variance $300 Unfavorable
Labor efficiency variance 900 Unfavorable
Controllable overhead variance -$500 Favorable
Overhead volume variance 4000 Unfavorable
Total $4,574 Unfavorable

Explanation-

The overhead volume variance not shows the control over the costs. Volume variance is also unfavorable which
ce is also unfavorable which shows the actual prodcution is less than the budgeted production.
Solution-
a
Material cost, old material $20,000,000
Labor cost, old material $4,000,000
Total $24,000,000

Material cost, new material $19,800,000

Labor cost, old material $3,000,000
Total $22,800,000

Cost savings $1,200,000

b
If standard costs are not updated then expected material and labor variances are as follows-

Material Price Variance (assuming 900,000 pounds purchased)

Material Price Variance = (AP - SP)*AQ

Material Price Variance =($22 - $20)*900,000
Material Price Variance = $1,800,000 unfavorable

Material Quantity Variance (assuming 900,000 pounds used)

Material Quantity Variance = (AQ - SQ)*SP
Material Quantity Variance = (900,000 – 1,000,000)*$20
Material Quantity Variance = ($2,000,000) favorable

Labor Rate Variance (assuming no difference between actual and standard rates)

So,

Labor Rate Variance = 0

Labor Efficiency Variance = (AH - SH)*SR

Labor Efficiency Variance = (150,000 - 200,000)*$20
Labor Efficiency Variance = (1,000,000) favorable

c
Until the standars are not updated till that time price varice is negative so we not suggest use of the material. This
use of the material. This hold even large cost of savings associated with the new material.