Ayala Corporation accumulates the following data relative to jobs started and fi

Question

Ayala Corporation accumulates the following data relative to jobs started and finished during the month of June 2017.

Cost and Production Data

actual

standard

2.10

10000

42500

3.00

1.30

overhead is applied on the basis of standard machine hours. Three hours of machine time are required for each direct labor hour. The jobs were sold for 400,000. Selling and administraive expenses were 40,000. Assume that the total amount of raw materials purchased equaled the amount used. a) compute all of the variances for (1) direct materials and (2) direct labor b) compute the total ovehead variance c)prepare an income statement for management.

Cost and Production Data

actual

standard

raw material unit cost 2.25

2.10

raw material unit used 10600

10000

direct labor payroll 120960 120000 direct labor hours worked 14400 15000 manufacturing overhead incurred 14400 15000 manufacturing overhead applied 189500 machine hours expected to be used at normal capacity 193500 budgeted fixed overhead for june

42500

variable overhead rate per machine hr

3.00

fixed overhead rate per machine hr

1.30

Explanation / Answer

A) Variances of direct materials

Given actual raw material units used (AQ) 10600 units          Standard units (SP): 10000 units

cost per unit                   actual (AP)           2.25                   Standard (SQ): 2.10

Material Cost Variance = standard cost - actual cost = (SP* SQ) - (AP*AQ) = (10000* 2.10) - (10600*2.25)

                                                                            = 21000 - 23850 = 2850 A

Material price variance = standard cost of Actual Quantity - Actual Cost = (SP * AQ) - (AP * AQ) = (2.10 * 10600) - (2.25* 10600) = 22260 - 23850 = 1590 A

Material Usage Varince = standard cost of standard quantity - standard cost of actual quantity = (SQ * SP) - (AQ* SP) = (10000 * 2.10) - (10600 * 2.10) = 21000 - 22260 = 1260 A

Variances of direct labour :

Given standard cost of labour = 120000        Actual Labour cost = 120960

Standard labour hours = 14400       Actual labour hours = 15000

Standard rate per hour= 120000 / 14400 = 8.33         Actual rate per hour = 120960 / 15000 = 8.064

Labour Cost Variance = (Standard Cost – Actual Cost) = 120000 - 120960 = 960A

Labour Rate Variance = (Standard Cost of Actual Time - Actual Cost) = (SR * AH ) - (AR * AH) = (8.33 * 15000) - (8.064 * 15000) = 124950 - 120960 = 3990 F

Labour Efficiency Variance = (Standard Cost of Standard Time for Actual Production – Standard Cost of Actual Time) = ( SR * SH) - (SR * AH) = ( 8.33 * 14400) - (8.33 * 15000) = 119952 - 124950 = 4998 A

Total overhead variance = Overhead absorbed - actual overhead = (AR * SR) - (AR * AH) =

Calculation of unit factory cost

Direct material                                  2.10

Direct labour                                     8.33

Manufacturing overhead                     4.30 (3.00 + 1.30)

Factory cost                                     14.73

                         

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