Toby Park manufactures carpets. He has two direct cost categories; direct materi

Question

Toby Park manufactures carpets. He has two direct cost categories; direct materials and direct labor costs. The allocation of variable manufacturing overhead is based on standard direct labor hours. Toby Park provides the following information regarding his standards and actual performance for the month of July.

For the month of July, Toby Park has budgeted 110,000 pounds of direct materials. He also budgeted 40,000 direct labor hours at a cost of $1,280,000. Based on the 40,000 direct labor hours, the budgeted variable manufacturing overhead was $495,000. The standard cost per pound was $9.50 and the standard quantity per output was 5 pounds.

The following information shows the actual results for the month of July:

Note: Assume direct materials used are equal to direct materials purchased.

Calculate the following for July:

Do not enter dollar signs or commas in the input boxes.
Round your answer to the nearest whole number.

a) Total amount of direct materials used: Answer lbs

b) Variable manufacturing overhead spending variance: $Answer AnswerFavorableUnfavorable

Round your answer to 2 decimal places.

c) Total number of labor hours used.

Standard direct labor rate: Answer per hour
Actual direct labor rate: Answer per hour
Actual labor hours: Answer hours

Direct Materials Price Variance $199,000 F Price Variance per pound $1.40 per lb Efficiency Variance $60,400 U Direct Labor Labor costs incurred $705,000 Efficiency Variance $140,000 U Actual Wage Rate - Budgeted Wage Rate $0.60 per hour Variable Manufacturing Overhead Flexible Budget Variance $13,500 U Efficiency Variance $5,000 U

Explanation / Answer

Part A)

The amount of direct material used can be calculated with the use of direct material price variance (as direct material purchased is same as direct material used).

The formula for direct material price variance is

Direct Material Price Variance = Actual Material Purchased*Price Variance Per Pound

Using the values provided in the question, we get,

-199,000 = Actual Material Purchased*(-1.40) [we are using - because the variance is favorable]

Actual Material Purchased (lbs) = 199,000/1.40 = 142,142.86 (lbs)

Actual Material Used (lbs) = Actual Material Purchased = 142,142.86 lbs

_________

Part B)

The variable manufacturing overhead spending variance is calculated with the use of following formula for flexible budget variance:

Flexible Budget Variance = Spending (Price) Variance + Efficiency Variance

Substituting the values provided in the question, in the above formula, we get,

13,500 = Spending (Price) Variance + 5000

Variable Overhead Spending Variance = 13,500 - 5,000 = $8,500 (Unfavorable)

_________

Part C)

The total number of labor hours used will be calculated as follows:

Standard Direct Labor Rate = Total Budgeted Direct Labor Cost/Budgeted Direct Labor Hours = 1,280,000/40,000 = $32 per hour

Actual Direct Labor Rate = 32 (Budgeted/Standard Wage Rate) + .60 (Difference between Actual Wage and Budgeted/Standard Wage Rate) = $32.60 per hour

Actual Direct Labor Hours = Direct Labor Cost Incurred/Actual Direct Labor Rate = 705,000/32.60 = $21,625.77 or $21,626 hours

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