Xavier Company produces a generic compound used by physical therapists in the me
ID: 2485096 • Letter: X
Question
Xavier Company produces a generic compound used by physical therapists in the medical field and this is the only product they manufacture. Variable manufacturing overhead is applied to the compound on the basis of direct labor-hours. The standard costs for one unit of product are as follows:
Direct materials: 6 ounces at $0.50 per ounce…………………………….$3
Direct labor: 1.8 hours at $10 per hour……………………………………18
Variable mfctrg overhead: 1.8 hours at $5 per hour……………………….9
Total standard variable costs per unit……………………………………$30
During June, 2000 units were produced. The costs associated with June’s operations were as follows:
Materials purchased: 18,000 ounces at $0.60 per ounce……………..$10,800
Materials used in production: 14,000 ounces…………………………….----
Direct labor: 4,000 hours at $9.75 per hour………………………….$39,000
Variable manufacturing overhead costs incurred……………………$20,800
Required:
Compute the direct materials, direct labor, and variable manufacturing overhead variances.
Explanation / Answer
Direct Material Price Variance = Actual Quantity * (Actual Price - Standard Price)
= 14000 * (.60 - .50) = 1400 (U)
Direct Material Quantity Variance = (Standard Quantity Actual Quantity) × Standard Price
((2000*6) - 18000) * .50 = 3000 (U)
Direct Labor Rate Variance = Actual Hours * (Actual Rate - Standard Rate)
= 4000 * (9.75 - 10) = 1000 (F)
Direct Labor Efficiency Variance = (Actual Hours - Standard Hours) * Standard Rate
= (4000 - (1.8*2000)) * 10 = 4000 (U)
Variable overhead efficiency Variance = Standard overhead rate x (Actual hours - standard hours)
= 5 * (4000 - 3600) = 2000 (U)
Variable overhead spending Variance = Actual hours worked * (Actual overhead rate - Standard overhead rate)
= 4000 * (20800/4000 - 5) = 800 (U)
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