During 2010, Bo Company produced a toy. The toy was assembled from material expe

Question

During 2010, Bo Company produced a toy. The toy was assembled from material expected to cost $20 per ounce and two ounces were expected to be needed for each toy. Assembly was expected to require 1.5 hours per toy, at $10 per hour. During the year, variable factory overhead was applied at the rate of $4 per direct labor hour. 5,000 toys were produced during 2009, using 11,000 ounces of material costing $378,000, 8,000 hours of direct labor costing $90,000, and variable factory overhead totaling $28,000.
Compute the prime cost variances for 2010.

Explanation / Answer

Estimated Material Costs: ($20 per ounce)(2 ounces)(5,000 toys) = $200,000

Estimated Direct Labor Cost: (1.5 hours per toy)($10 per hour)(5,000 toys) = $75,000

Estiamted Variable Factory Overhead: (1.5 hours per toy)(5000 toys)($4 per direct labor hour) = $30,000

Actual Material Costs: $378,000

Actual Direct Labor Cost: $90,000

Actual Variable Factory Overhead: $28,000

Prime Cost Variance = ($378,000-$200,000) + ($90,000 - $75,000) + ($28,000-$30,000) = $191,000

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