Variance Analysis for Direct Materials and Labor Exercise

CSUGC Variance Analysis for Direct Materials and Labor Exercise

Calculating Variance Analyses for Direct Materials and Labor

THE HOCKEY HELMET COMPANY EXPECTS INCREASED DEMAND FOR ITS HOCKEY HELMETS AT THE BEGINNING OF HOCKEY SEASON IN SEPTEMBER.

Here is the projected data for September:

The Hockey CompanyVariable Costs TotalFixed Costs TotalRaw materials$ 325,000Direct manufacturing labor$ 170,000Indirect manufacturing labor$ 22,500Factory Insurance & Utilities$ 34,000Depreciation ? Machinery and factory$ 18,500Repairs and maintenance ? factory$ 17,000Distribution expenses$ 20,000$ 40,000General and administrative expenses$ 30,000Variable Cost and Volume DataRaw materials = 3.25 lbs. x $10.00/lb.$ 32.50Direct Labor = 1.7 hr. x $10/hr.$ 17.00Volume in units10,000

Sales price per helmet is $90.

Required elements:

In good form in Microsoft Excel perform the following tasks:

Prepare the static budget operating income in contribution format.

If sales demand increases to 11,500 units for September, prepare the flexible budget for September in contribution format to reflect the new data.

Compute and reconcile the sales volume variance, indicating whether the variance is favorable or unfavorable.

Given the following additional actual data:Total Direct Costs Incurred for SeptemberRaw Materials =35,100 lbs. used$ 351,000Direct Labor =18,360 hrs. incurred$ 183,600Volume in units10,800Using the three-prong method to present your calculations, compute the direct materials price variance, the direct materials efficiency variance, the labor price variance, and the labor efficiency variance, indicating whether these are favorable or unfavorable.

Below each variance calculation neatly provide one possible explanation for each of the variances.