5. P26-B3 Straightforward variance analysis (L.O. 5) Arrow Enterprises uses a st

Question

5. P26-B3 Straightforward variance analysis (L.O. 5) Arrow Enterprises uses a standard costing system. The standard cost sheet for product no. 549 follows. Direct materials: 4 units @ $6.50 $26.00 Direct labor: 8 hours @ $8.50 68 Variable factory overhead: 8 hours @ $7.00 56 Fixed factory overhead: 8 hours @ 2.5 20 Total standard cost per unit $170.00 The following information pertains to activity for December: 1. Direct materials acquired during the month amounted to 26,350 units at $6.40 per unit. All materials were consumed in operations. 2. Arrow incurred an average wage rate of $8.75 for 51,400 hours of activity. 3. Total overhead incurred amounted to $508,400. Budgeted fixed overhead totals $1.8 million and is spread evenly throughout the year. 4. Actual production amounted to 6,500 completed units. Instructions: a. Compute Arrow's direct material variances. b. Compute Arrow's direct labor variances. c. Compute Arrow's variances for factory overhead.

Explanation / Answer

Standards Data-1 Unit Actual Data-6500 Unit Quantity rate P.u. Amount Quantity rate P.u. Amount Direct Material 4 6.5               26.00             26,350                        6              168,640 Direct Labour 8 8.5               68.00             51,400                        9              449,750 Variable overhead 8                           7               56.00              508,400 Fixed Overhead 8 2.5               20.00          1,800,000 Total             170.00          2,926,790 Direct Material Variance = (Standard Cost-Actual Cost) = (6500*4*6.5)-168640 = 360 Favorable Direct Labout Variance = (Standard Cost-Actual Cost) = (6500*8*8.5)-449750 = 7750 Unfavorable

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