Antuen Compeny set the following standard costs for one unit of its product Dire

Question

Antuen Compeny set the following standard costs for one unit of its product Direct malerias 05 0 lbs.$6.0 per b)$30.0 Direct labor (1.9 hrs$13.0 per h Overhend (1.9 hrs.$18.50 per hrj Tolal standerd cost 24.70 35 15 $ 89.85 The predetermined overhead rate cb1850 per direct labor hour, is based on an expected volume of 79% of the factory's capacity of 20,000 units per month. Folowing are the company's budgeted overhead costs per month at the 75% level Variable overhead costs $ 15,000 90,000 15,000 30,000 Indrect materials Indirect labor Repeirs and meintenance Total variable overhead costs Depreciation-building Taxes and insurance $150,000 Fixed overhead costs 24,000 73,000 18,000 Total fxed overhead costs 377 250 Total overheed costs $527,250 The company incurred the following actual costs when " operated at 75% of capacity in October Direct matennis (76,000 bsos6oper b) 463.600 406,100 Direct labor (31,000 hrs a $1310 per hr.) Overhead costs 46,000 77.250 17 250 34.500 Indirect materials ndirect labor Repairs and maintenance Depreciation-building 24,000 SAMSUNG esc 4 6

Explanation / Answer

Direct labour Cost variance

= Standard cost of direct labour for actual output – actual cost of direct labour

= (15000 units x 1.9 hour/unit) x $13/hour - $406100

= $370500 - $406100

= $ 35600 Unfavourable

Direct Labour Rate Variance

= (Standard rate – actual rate) x actual direct labour hours used.

= ($13/ hr - $13.10/hr) x 31000 hrs

= $3100 Unfavourable

Capacity at 100% level = 20000 units

Production at 75% capacity = 20000 x 75% = 15000 units

Direct Labour Efficiency variance

=(standard labour hours required for actual production – actual labour hour used) x standard rate

=(1.9 hrs/ unit x 15000 units – 31000 hours) x $13/hr

= (28500 hours – 31000 hours) x $13/hour

= $32500 Unfavourable

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