Trico Company set the following standard unit costs for its single product. Dire

Question

Trico Company set the following standard unit costs for its single product. Direct materlals (30 lbs. $4 per lb.) Direct labor (8 hrs.@ $8 per hr.) Factory overhead-varlable (8 hrs. $5 per hr) Factory overhead-fixed (8 hrs. $7 per hr) $120.00 64.00 40.00 56.00 Total standard cost $280.00 The predetermined overhead rate is based on a planned operating volume of 70% of the productive capacity of 70,000 units per quarter. The following flexible budget Information is avallable Operating Levels 60% 42,000 336,000 70% 49,000 392,000 80% Production In units Standard direct labor hours Budgeted overhead 56,000 448,000 Fixed factory overhead Varlable factory overhead $ 2744.00 $. 2744,000 $ 2744,000 $ 1,680,000 $ 1,960,000 $2,240,000 During the current quarter, the company operated at 80% of capacity and produced 56,000 units of product; actual direct labor totaled 445,000 hours. Units produced were assigned the following standard costs: Direct materlals (1,680,000 lbs.$4 per lb.) Direct labor (448,000 hrs. $8 per hr) Factory overhead (448,000 hrs. $12 per hr.) $ 6,720,000 3,584,000 5,376,000 Total standard cost $15,680,000

Explanation / Answer

1) Material cost variance = ( Actual price - standard price) * actual quantity    = ( 4.10 - 4) * 1675000    = 0.10 * 1675000    = 167500 unfavourable Material quantity variance = ( Standard quantity - actual quantity) * standard price             = ( 1680000 - 1675000) * 4             = 5000 * 4             = 20000 favourable Total material variance = material cost variance + material quantity variance      = 167500 uf + 20000 f     = 147500 unfavourable 2) Labor rate variance     = ( Actual rate - standard rate) * actual hours    = ( 7.75 - 8 ) * 445000    = 0.25 * 445000 111250 135250    = 111250 favourable labor efficiency variance = ( Standard hours - actual hours) * standard rate        = ( 448000 - 445000) * 8           = 3000 * 8         = 24000 favourable Total labor variance = labor rate variance + labor efficiency variance = 111250 f + 24000 f = 135250 favourable 3) Controllable Variance = Actual variable overhead - Budgeted overhead    = 3694340 - 445000 * 5 = 3694340 - 2225000 = 1469340 unfavourable Fixed overhead volume variance = Budgeted fixed overhead - fixed overhead cost applied      = 2744000 - 3946226      = 1202226 unfavourable

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