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Q1) Downes Consolidated Industries International uses standard cost system and records standards in accounting records. Standard costs for one unit of one of its products are given below.

Direct Materials, 3lbs.@$20 per lb. $ 60.00
Direct labor, 2 hrs. @$15 per hr. $ 30.00
Variable overhead, 4machine hrs. @$1 per hr $ 4.00
Fixed overhead, 4 machine hrs.@$2.50 per hr $ 10.00
Total $104.00

Overhead is applied on basis of machine hours. Planned level of activity(denominator level) is 320,000 machine hours. Total budgeted fixed overhead is $800,000.
Other budgeted items are:
Unit selling price, $170,00 per unit
Variable selling & administrative expenses, $5 per unit
Fixed selling & administrative expenses, $160,000.
Planned level of production and sales, 80,000.


Direct materials purchased, 250,000 lbs.@$22 per lb.
Direct materials used, 240,000
Direct labor, 150,000 hrs, total cost, $2,225,000
Variable overhead, $340,000
Fixed overhead, $810,000
Units produced, 82,000 Units
Units sold, 80,500
Selling price per unit,160,00
Variable selling and administrative expenses, $410,000.
Fixed selling & administrative , $175,000.
Actual machine hours,330,000.


Compute the following variances and point out whether each is favorable or unfavorable.

1. Materials price variance
2. Materials quantity variance
3. Labor rate variance
4. Labor efficiency variance
5. Variable overhead spending variance
7. Fixed overhead volume variance
8. Sales price variance
9. Sales quantity variance
10. Variable selling & admin. Exp. variance
11. Fixed selling & admin. Exp. variance

Accounting Basics, Accounting

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  • Reference No.:- M921489

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