Chapter-10: Variance Analysis

Problem-1
Neptune Company produces a single product. Variable manufacturing overhead is applied to
productions on the basis of direct labor-hours. The standard costs for one unit of a product
are as follows:
Description Per Unit Cost Tk.
Direct material: 20 ounces at Tk. 0.75 per ounce 15
Direct labor: 1.5 hours at Tk. 20 per hour 30
Variable manufacturing overhead: 1.5 hours at Tk. 10 per hour 15
Total standard variable costs per unit 60
In June, 3,000 units were produced. The costs associated with June’s operations were as follows:
Description Total Cost Tk.
Direct material purchased: 90,000 ounces at Tk. 0.7 per ounce 63,000
Direct material used production 75,000 ounces -
Direct labor: 4,200 hours at Tk. 22 per hour 92,400
Variable manufacturing overhead incurred 40,000
Required:
i) Compute material price and material quantity variances
ii) Compute labor rate and labor efficiency variances
iii) Compute overhead spending and overhead efficiency variances

Problem-2
Becton Labs, Inc. produces various chemical compounds for industrial use. One compound,
called Fludex, is prepared using an elaborate distilling process. The company has developed
standard costs for one unit of Fludex, as follows:
Std. Quantity Std. Price of Rate Std. Cost
Direct Materials 2.5 ounces $20.00 per ounces $50.00
Direct Labor 1.4 hours $22.50 per hour 31.50
Variable Manufacturing 1.4 hours $3.50 per hour 4.90
Overhead
Total $86.40
During November, the following activity was recorded relative to production of Fludex:
a. Materials purchased, 12,000 ounces at a cost of $225,000 i.e. $18.75 per ounce.
b. There was no beginning inventory of materials; however, at the end of the month, 2,500
ounces of material remained in ending inventory.
c. The company employs 35 lab technicians to work on the production of Fludex. During
November, they worked an average of 160 hours at an average rate of $22 per hour.
d. Variable manufacturing overhead is assigned to Fludex on the basis of direct labor-hours.
Actual variable manufacturing overhead costs during November totaled $18,200.
e. During November, 3,750 good units of Fludex were actually produced.
The company’s management is anxious to determine the efficiency of Fludex production
activities.
Required:
1. For direct materials used in Fludex, compute the price and quantity variences.
2. For direct labor employed in Fludex, compute the rate and efficiency variances.
3. Compute the variable overhead spending and efficiency variances.