1.

Compute a materials price variance for the plates purchased last month and a
materials quantity variance for the plates used last month.

Materials Price variance = (AP - SP) x AQ

AQ Actual Quantity 12,000 plates

AP Actual Price 2.35
SP Standard Price 2.5

Materials Price variance = (2.35 - 2.50) x 12,000

= -0.15 x 12,000
= -1800 F

Materials Quantity variance = (AQ - SQ) x SP

SP Standard Price 2.5

AQ Actual Quantity 10,500 12,000 less 1,500 unused
SQ Standard Quantity 8,400 *

*For Blood tests 1,800

For Smears 2,400
Test performed 4,200
Plates used per test 2
Standard Quantity 8400

Materials Quantity variance = (10,500 - 8,400) x 2.5

= 2,100 x 2.5
= 5250 U
month and a 2. For labor cost in the lab:
. a. Compute a labor rate variance and a labor efficiency variance.

Labor Rate variance = (AR - SR) x AH

AH Actual Hour 1,150

AR Actual Rate 12 13,800/1,150hr
SR Standard Rate 14

Labor Rate variance = (12 - 14) x 1,150

= -2 x 1,150
= -2300 F

Labor Efficiency variance = (AH - SH) x SR

SR Standard Rate 14
AH Actual Hour 1,150
SH Standard Hour 900 *

*For Blood tests 0.3 hrs per test x 1,800 tests 540
For Smears 0.15 hrs per test x 2,400 tests 360
Standard Hour 900

Labor Efficiency variance = (1,150 - 900) x 14

= 250 x 14
= 3500 U
 b. In most hospitals, one-half of the workers I the lab are senior technicians
and one-half are assistants. In an effort to reduce costs, Valley View
Hospital employs only one-fourth senior technicians and three-fourths
assistants. Would you recommend that this policy be continued? Explain.

I recommend that the hospital must not continue with this policy. Although the hospital have
already saved Php 2.00 per hour (Standard rate 14.00 less Actual rate Php 12.00) by employing only
a quarter of senior technicians and rest are assistants however in the long run time spent in
performing lab tests will skyrocket based on large unfavorable efficiency variance. As the hospital
tries to reduce the costs by employing more assistants, it also backfires with increase in time
peforming lab tests affecting their efficiency. Moreover, the 5,250 unfavorable material quantity
variance also contributes to the factor of not continuing to this policy since assistants are not well
supervised in the lab which resulted to this unfavorable variance. Hiring more assistants cannot
compensate the unfavorableness caused by the former as it shows the hospital is less efficient and
material exhaustive.
 3. Compute the variable overhead spending and efficiency variance.

Variable OH Spending variance = AVOH - (VOH rate x AH)

AVOH Actual Overhead 7,820

VOH rate Variable Overhead rate 6 pesos
AH Actual Hours 1,150

Variable OH Spending variance = 7,820 - (6 x 1,150)

= 7,820 - 6,900
= 920 U

Variable OH Efficiency variance = (AH - SH) x VOH rate

VOH rate Variable Overhead rate 6 pesos

AH Actual Hour 1,150
SH Standard Hour 900

Variable OH Efficiency variance = (1,150 - 900) x 6

= 250 x 6
= 1500 U
1. Compute the direct materials spending and efficiency variances for the year.
2. Compute the direct labor spending and efficiency variances for the year.

Direct Materials Spending variance = (AP - SP) x AQ

= (8.55 - 8.45) x 64,000
0.1 x 64,000
6400 U

Direct Materials Efficiency variance = (AQ - SQ) x SP

= (64,000 -60,000) 8.45
= 4,000 x 8.45
= 33800 U

Direct Labor Spending variance = (AR - SR) x AH

= (7.8 - 8) x 45,000
= -0.2 x 45,000
= -9000 F

Direct Labor Efficiency variance = (AH - SH) x SR

= (45,000 - 42,000*) x 8 *30,000 x 1.4 per DLH
= 3,000 x 8
= 24000 U
3. For the manufacturing overhead, compute:
a. the variable overhead spending and efficiency variances for the year.
b. the fixed overhead budget and volume variances for the year.

Variable OH Spending variance = AVOH - (VOH rate x AH)

= 108,000 - (2.5 x 45,000)
= 108,000 - 112500
= -4500 F

Variable OH Efficiency variance = (AH - SH) x VOH rate

= (45,000 -42,000) x 2.5
= 3,000 x 2.5
= 7500 U

Fixed OH Spending variance = AFOH - BFOH

= 211,800 - 210,000
= 1800 U

Fixed OH Volume variance = BFOH - (FOH rate x SH)

= 210,000 - (6 x 42,000)
= 210,000 - 252000
= -42000 F
 4. Total the variances you have computed, and compare the net amount with the
P18,000 mentioned by the president. Do you agree that bonuses should be given to
everyone for good cost control during the year. Explain.

DM Spending variance 6,400 U

DM Efficiency variance 33,800 U
DL Spending variance -9000 F
DL Efficiency variance 24000 U
Variable OH Spending variance -4500 F
Variable OH Efficiency variance 7,500 U
Fixed OH Spending variance 1,800 U
Fixed Oh Efficiency variance -42,000 F
Total variance 18,000

Overall Mftg cost variance

mentioned by the President
18,000 Yes. Everyone did a great job in fulfilling their task in
both from computation of spending and efficiency var
mentioned which is only 1.5% of standard cost of pr
acceptable variances thus, it is worth of a bonus as it s
deserves a bonus pay for their ded
 amount with the
should be given to
plain.

great job in fulfilling their task in controlling the cost as the overall manufacturing cost variance is only 18,000
tion of spending and efficiency variance from materials, labor, voh, and foh the same what the President have
s only 1.5% of standard cost of product sold. It did not exceed the 3% parameter set by the management for
thus, it is worth of a bonus as it shows how efficient and cost effective their operation have become. Everyone
eserves a bonus pay for their dedication to work and mindful of the company's operations.