Part C: Variance Analysis for Decision Making

Bronfenbrenner Co. uses a standard cost system for its single product in which variable overhead is applied on the basis of direct labor hours. The following information is given:

Standard costs per unit:

Raw materials (1.5 grams at $16 per gram) ............................

$24.00

Direct labor (0.75 hours at $8 per hour) ..................................

$6.00

Variable overhead (0.75 hours at $3 per hour) ........................

$2.25

Actual experience for current year:

Units produced ........................................................................

22,400 units

Purchases of raw materials (21,000 grams at $17 per gram) ..

$357,000

Raw materials used ..................................................................

33,400 grams

Direct labor (16,750 hours at $8 per hour) ..............................

$134,000

Variable overhead cost incurred ..............................................

$48,575

Required:

Compute the following variances for raw materials, direct labor, and variable overhead, assuming that the price variance for materials is recognized at point of purchase:

a.Direct materials price variance.

b.Direct materials quantity variance.

c.Direct labor rate variance.

d.Direct labor efficiency variance.

e.Variable overhead spending variance.

f.Variable overhead efficiency variance.

g.As a manager, why is variance analysis important?