2. Compute the labor rate and efficiency variances for August.
3. Compute the variable overhead rate and efficiency variances for August.
Explanation:
1.
Actual Quantity of Input, at Actual Price   Actual Quantity of Input, at Standard Price   Standard Quantity Allowed for Output, at Standard Price 
(AQ × AP)
 
(AQ × SP)
 
(SQ × SP)

  6,000 yards × $6.60 per yard*   5,250 yards** × $6.60 per yards* 
$34,020   = $39,600   = $34,650 

Price Variance, $5,580 F

Quantity Variance, $4,950 U
 


Spending variance, $630 F

 
*$16.50 ÷ 2.50 yards = $6.60 per yard 
**2,100 sets × 2.50 yards per set = 5,250 yards 
Alternatively, the variances can be computed using the formulas: 

Materials price variance = AQ (AP − SP) 
6,000 yards ($5.67 per yard* − $6.60 per yard) = $5,580 F 
*$34,020 ÷ 6,000 yards = $5.67 per yard 

Materials quantity variance = SP (AQ − SQ) 
$6.60 per yard (6,000 yards − 5,250 yards) = $4,950 U 
2.
Many students will miss parts 2 and 3 because they will try to use product costs as if they were hourly
costs. Pay particular attention to the computation of the standard
direct labor time per unit and the standard direct labor rate per hour.

Actual Hours of Input, at the Actual Rate   Actual Hours of Input, at the Standard Rate   Standard Hours Allowed for Output, at the Standard Rate 
(AH × AR)
 
(AH × SR)
 
(SH × SR)

  1,000 hours × $7.00 per hour*   1,050 hours** × $7.00 per hour* 
$7,770   = $7,000   = $7,350 

Rate Variance, $770 U

Efficiency Variance, $350 F
 


Spending variance, $420 U

 
*980
standard hours ÷ 1,960 sets = 0.5 standard hour per set, $3.50 standard
cost per set ÷ 0.5 standard hours per set = $7 standard rate per hour. 
**2,100 sets × 0.5 standard hours per set = 1,050 standard hours. 
Alternatively, the variances can be computed using the formulas: 

Labor rate variance = AH (AR − SR) 
1,000 hours ($7.77 per hour* − $7.00 per hour) = $770 U 
*$7,770 ÷ 1,000 hours = $7.77 per hour 

Labor efficiency variance = SR (AH − SH) 
$7.00 per hour (1,000 hours − 1,050 hours) = $350 F 
3.
Actual Hours of Input, at the Actual Rate   Actual Hours of Input, at the Standard Rate   Standard Hours Allowed for Output, at the Standard Rate 
(AH × AR)
 
(AH × SR)
 
(SH × SR)

  1,000 hours × $2.00 per hour*   1,050 hours × $2.00 per hour* 
$3,990   = $2,000   = $2,100 

Rate Variance, $1,990 U

Efficiency Variance, $100 F
 


Spending variance, $1,890 U

 
*$1.00 standard cost per set ÷ .50 standard hours per set = $2.00 standard rate per hour 
Alternatively, the variances can be computed using the formulas: 

Variable overhead rate variance = AH (AR − SR) 
1,000 hours ($3.99 per hour* – $2.00 per hour) = $1,990 U 
*$3,990 ÷ 1,000 hours = $3.99 per hour 

Variable overhead efficiency variance = SR (AH − SH) 
$2.00 per hour (1,000 hours – 1,050 hours) = $100 F 
