Reagen Corporation makes a product with the following standard costs:??Standard Quantity or HoursStandard Price or Rate?Direct materials3.7 liters $5.00 per liter?Direct labor0.3 hours$21.00 per hour?Variable overhead0.3 hours $7.00 per hourThe company reported the following results concerning this product in December.?Actual output7,700 units?Raw materials used in production26,880 liters?Actual direct labor-hours2,270 hours?Purchases of raw materials28,400 liters?Actual price of raw materials$4.90 per liter?Actual direct labor rate$21.50 per hour?Actual variable overhead rate$6.40 per hourThe materials price variance is recognized when materials are purchased. Variable overhead is applied on the basis of direct labor-hours.Required:a. Compute the

Question

materials quantity variance.b. Compute the materials price variance.c. Compute the labor efficiency variance.d. Compute the labor rate variance.e. Compute the variable overhead efficiency variance.f. Compute the variable overhead rate variance.

What will be an ideal response?

Answer 1

a. SQ = 7,700 units × 3.7 liters per unit = 28,490 liters
Materials quantity variance = (AQ - SQ) × SP
= (26,880 liters - 28,490 liters) × $5.00 per liter
= (-1,610 liters) × $5.00 per liter
= $8,050 F

b. Materials price variance = AQ × (AP - SP)
= 28,400 liters × ($4.90 per liter - $5.00 per liter)
= 28,400 liters × (-$0.10 per liter)
= $2,840 F

c. SH = 7,700 units × 0.3 hours per unit = 2,310 hours
Labor efficiency variance = (AH × SR) - (SH × SR)
= (2,270 hours × $21.00 per hour) - (2,310 hours × $21.00 per hour)
= $47,670 - $48,510
= $840 F

d. Labor rate variance = (AH × AR) - (AH × SR)
= (2,270 hours × $21.50 per hour) - (2,270 hours × $21.00 per hour)
= $48,805 - $47,670
= $1,135 U

e. SH = 7,700 units × 0.3 hours per unit = 2,310 hours
Variable overhead efficiency variance = (AH - SH) × SR
= (2,270 hours - 2,310 hours) × $7.00 per hour
= (-40 hours) × $7.00 per hour
= $280 F

f. Variable overhead rate variance = AH × (AR - SR)
= 2,270 hours × ($6.40 per hour - $7.00 per hour)
= 2,270 hours × (-$0.60 per hour)
= $1,362 F