O.G. Company produces widgets. O.G. Company reports the following information on
ID: 2404583 • Letter: O
Question
O.G. Company produces widgets. O.G. Company reports the following information on the production of 1 widget:
STANDARD
Direct materials:
Purchase price: $2.50 per pound
Discount: $0.25 per pound
Shipping: $0.30 per pound
Pounds need per widget: 12 pounds
Waste per widget: .5 pounds
Spoilage per widget: .25 pounds
Direct Labor:
Hourly pay rate: $25 per hour
Payroll taxes & benefits: $7 per hour
Time to produce 1 widget: 10 hours
Setup time 1.5 hours
Downtime/cleanup .5 hours
Overhead:
Budgeted Variable overhead: $550,000
Budgeted Fixed overhead: $400,000
Budgeted direct labor hours: 120,000 hours (cost driver for overhead)
Production (in units): 10,000 units
ACTUAL:
Direct materials used: 130,000 pounds
Direct materials cost: $2.10 per pound
Direct labor hours: 140,000 hours
Direct labor cost: $34 per hour
Overhead: $870,000
Actual production: 10,000 units
Calculate the standard cost per widget using the standard information above, and then calculate the materials variance (price, quantity and total), the labor variance (price, quantity and total) and the overhead variance using the actual information above compared to the standard costs.
Explanation / Answer
Standard Quantity required to prepare a single unit of widget:
Material requirement per widget = 12 pounds
Add: allowance for waste per widget = 0.5 pounds
Allowance for spoilage per widget = 0.25 pounds
Standard quantity required per Widget = 12.75 pounds
Total standard quantiy to produce 10,000 widgets = 10,000 x 12.75 pounds = 127,500 pounds
Calculation of Standard price per widget:
Material purchase price per pound = $2.5 per pound
Less: Discount per pound = $0.25 per pound
Add: Shipping charges per pound = $0.30 per pound
Standard material price per pound = $2.55 per pound
Standard material price per widget = 12.75 pounds x $2.55 per pound = $32.5
Calculaton of Standard labors hours per widget:
Labor hours per widget = 10 hours
Setup time = 1.5 hours
Downtime/cleanup = 0.5 hours
Labor hours per widget = 12 hours
Standard labor hours to produce 10,000 widgets = 10,000 x 12 = 120,000 hours
Calculation of labor cost per widget:
Hourly pay rate: = $25 per hour
Payroll taxes & benefits: = $7 per hour
Standard Labor cost per hour = $33 per hour
labor cost per widget = 12 hours x $25 per hour = $300 per widget.
Calculation of Standard cost per Widget:
a. Budgeted production = 10,000 units
b. Total standard cost to produce 10,000 units
Direct mateial cost = 10,000 widgets x $32.5 per widget = $325,000
Direct labor cost = 10,000 widgets x $300 per widget = $3,000,000
Overhead cost = $550,000 + 400,000 = $950,000
Total Standard cost per widget = $4,275,000
Therefore, Standard cost per unit = Total standard cost ÷ Total budgeted production
= $4,275,000 ÷ 10,000 units
= $4,275
Calculation of variances:
Material variance:
Material price variance = Actual quantity x (Standard price - Actual price)
= 130,000 pounds x ($2.55 - $2.10)
= $58,500 (Favourable)
Material Quantity variance = Standard price x (Standard quantity - Actual qunatity)
= $2.55 x (127,500 pounds - 130,000 pounds)
= $6,375 (Adverse or unfavourable)
Material variance = (Standard quantity x Standard price) - (Actual quantiy x Actual price)
= (127,500 pounds x $2.55 per pound) - (130,000 pounds x $2.10 per pound)
= $325,125 - $273,000
= $52,125 (Favourable)
Labor variane:
Labour rate variance = Actual time x (Std. rate - Actual rate)
= 140,000 hours x ($33 per hour - $34 per hour)
= $140,000 (Adverse)
Labor hour variance / labor efficiancy variance = Std. rate per hour x (Std. hours - Actual hours)
= $33 per hour x (120,000 hours - 140,000 hours)
= $660,000 (Adverse)
Labor cost variance = Labor rate variance + Labor hour variance
= $140,000 + $660,000
= $800,000 (Adverse)
Overhead variance:
Overhead cost variance = Standard variable cost - Actual variable cost
= ($550,000 + $400,000) - $870,000
= $80,000 (Favourable)
Hope this is useful and thank u!!!!!!!!
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