Accounting for Decision Making and Control 6th Edition by Jerold Zimmerman

Exercise 20

Betterton Corporation manufactures automobile headlight lenses and uses a standard cost system. At the beginning of the year, the following standards were established per 100 lenses (a single batch).

Expected volume per month is 5,000 direct labor hours for January, and 105,000 headlight lenses were produced. There were no beginning inventories. The following costs were incurred in January:

Required:
a. Calculate the following variances:
(i) Overhead spending variance.
(ii) Volume variance.
(iii) Over/underabsorbed overhead.
(iv) Direct materials price variance at purchase.
(v) Direct labor efficiency variance.
(vi) Direct materials quantity variance.
b. Discuss how the direct materials price variance computed at purchase differs from the direct materials price variance computed at use. What are the advantages and disadvantages of each