Liquid Company Manufactures a Single Product That Has a Standard

Essay

Liquid Company manufactures a single product that has a standard materials cost of $20 (2 units of raw materials at $10 per unit), standard direct labor cost of $18 (1 hour per unit), and standard variable overhead cost of $8 (based on direct labor-hours). Fixed overhead is budgeted at $34,000 per month.
The following data pertain to operations for May of this year:
Required:
a. Compute the following variances (show calculations):
1. Materials quantity variance
2. Labor rate variance
3. Labor efficiency variance
4. Variable overhead spending variance
5. Variable overhead efficiency variance
6. Fixed overhead budget variance
b. Give one possible explanation for each of the six variances computed in requirement (a).