"Wonderful! Not only did our salespeople do a good job in meeting the sales budget this year, but our production people did a good job in controlling costs as well," said Kim Clark, president of Martell Company. "Our 18,300 overall manufacturing cost variance is only 1.2% of the 1,536,000 standard cost of products made during the year. That's well within the 3% parameter set by management for acceptable variances. It looks like everyone will be in line for a bonus this year."The company produces and sells a single product. The standard cost card for the product follows:The following additional information is available for the year just completed:a. The company manufactured 30,000 units of product during the year.b. A total of 64,000 feet of material was purchased during the year at a cost of 8.55 per foot. All of this material was used to manufacture the 30,000 units. There were no beginning or ending inventories for the year.c. The company worked 43,500 direct labor hours during the year at a direct labor cost of 15.80 per hour.d. Overhead is applied to products on the basis of standard direct labor hours. Data relating to manufacturing overhead costs follow:Denominator activity level (direct labor-hours)....Budgeted fixed overhead costs (from the overhead flexible budget)..Actual variable overhead costs incurred... 35,000 $210,000 $108,000 $211,800 Actual fixed overhead costs incurred. 211,800 Required:
(c) For manufacturing overhead compute:
1. The variable overhead rate and efficiency variances for the year.
2. The fixed overhead budget and volume variances for the year.

1-Material Variances - The difference between the budgeted/standard material cost for a product and the actual material costs after production. Material variances are calculated for the effect of changes in quantity consumed and changes in price of the raw materials price.

It is calculated as follows:

Material price variance=Actual quantity×(Actual price−Standard price)

Material quantity variance=(Actual quantity−Standard quantity)×Standard price

2- Labor variances - Direct labor cost variance is the difference between the standard cost for actual production and the actual cost in production.

It is calculated as follows:

Labor efficiency variance=(Actual hours−Standard hours)×Standard rate

Labor rate variance=(Actual rate−Standard rate)×Actual hours

3- Overhead Variance – Overhead variance is the difference between the actual overheads and the expected/budgeted overheads.

It is calculated as follows:

Overhead rate variance=(Actual rate−Standard rate)×Actual hours

Overhead efficiency variance=(Actual hours−Standard hours)×Standard rate

Overhead budget variance=Actual overhead−Budgeted overhead

Overhead volume variance=(Standard hours allowed−Denominator activity level)×Overhead rate per hour)

What is direct material Variance ?

The direct material variance is the difference between the standard cost of materials resulting from production activities and the actual costs incurred.

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