XO-20 is an oil-based product used to remove rust on bolts and nuts that are stu
ID: 2473270 • Letter: X
Question
XO-20 is an oil-based product used to remove rust on bolts and nuts that are stuck. Its accounting system uses standard costs. The standards per 0.5-liter can of solution call for 0.78 liters of material and 4 hours of labor. (0.78 liters of material are needed due to evaporation in the production process.) The standard cost per liter of material is $2.5. The standard cost per hour for labor is $12.10. Overhead is applied at the rate of $15.61 per can. Expected production is 8,300 cans with fixed overhead per year of $35,109 and variable overhead of $11.38 per unit (a 0.5-liter can).
During 2015, 7,970 cans were produced; 12,600 liters of material were purchased at a cost of $56,574; 10,130 liters of material were used in production. The cost of direct labor incurred in 2015 was $347,760, based on an average actual wage rate of $10.35 per hour. Actual overhead for 2015 was $127,000.
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XO-20 is an oil-based product used to remove rust on bolts and nuts that are stuck. Its accounting system uses standard costs. The standards per 0.5-liter can of solution call for 0.78 liters of material and 4 hours of labor. (0.78 liters of material are needed due to evaporation in the production process.) The standard cost per liter of material is $2.5. The standard cost per hour for labor is $12.10. Overhead is applied at the rate of $15.61 per can. Expected production is 8,300 cans with fixed overhead per year of $35,109 and variable overhead of $11.38 per unit (a 0.5-liter can).
During 2015, 7,970 cans were produced; 12,600 liters of material were purchased at a cost of $56,574; 10,130 liters of material were used in production. The cost of direct labor incurred in 2015 was $347,760, based on an average actual wage rate of $10.35 per hour. Actual overhead for 2015 was $127,000.
Explanation / Answer
Direct material price varaince=Actual quantity used×(Standard rate-Actual rate per unit) Direct material quantity used=10,130 liters Standard rate per litre $2.50 Actual rate per liter ($56,574/12,600 liters)=$4.49 Direct material price variance=10,130×($2.50-$4.49) =$20,158.70 Unfavorable Direct material quantity variance=(Standard cost of Standard quantity of material used for actual production-standard cost of actual quantity used) Standard quantity required for production of 7,970 cans: For 0.5 can =0.78 liters of material required For 7,970 cans=7,970×2×0.78liters '=12,277.2 liters Actual quantity used =12,600 liters Direct material quantity variance=Standard rate×(Actual quantity used-Standard quantity req.) =$2.50×(12,600-12,277.2) =$807 Unfavorable Direct labor rate variance=Actual labor hours used×(Standard rate per hour-Actual rate per hour) Actual labor hours used=($347,760/$10.35)=33,600 hours Actual rate per hour=$10.35 Standrad labor rate per hour=$12.10 Direct labor rate variance=33,600hours×($12.10-$10.35) =$58,800 Favorable Direct labor efficiency variance=Standard rate×(standard hours required for actual production-actual hours taken) Standard hours required for actual production of cans of 7,970=7,970×4 hours =31,880 hours Standard rate per hour=$12.10 Actual hours taken are 33,600 hours Direct labor efficiency variance=$12.10×(31,880-33,600) =$20,812 Unfavorable Controllable overhead variance= Actual overhead-budgeted allowance based on standard hours allowed Standard rate of overhead per can=$15.61 Standard units allowed for budgeted allowance=8,300 Standard cost of budgeted units=8,300×$15.61=$129,563 Actual overhead=$127,000 Controllable overhead variance=$127,000-$129,563 '=$2,563 Favorable Fixed Overhead volume variance=Standard rate of fixed overhead cost per unit ×(Budgeted units-standard units) =$4.23×(8,300-6,493) =$7,644 Unfavorable
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