You have been given the following list of variances for the Pennadi Company: Dir

Question

You have been given the following list of variances for the Pennadi Company: Direct materials price variance Direct materials quantity variance Direct labour rate variance Direct labour efficiency variance Variable overhead spending variance Variable overhead efficiency variance Fixed overhead budget variance Fixed overhead volume variance $11,300 U 11,700 U 16,620 F 36,000 U 2,700 U 5,300 U 4,300 U 67,200 F You have also been given the following information: Actual units produced Budgeted units of production (normal volume) Standard labour-hours for actual output Standard material units for actual output Actual direct labour costs Actual cost of direct materials 30,000 22,500 12,000 330,000 S235,380 S265,550 Overhead is applied using direct labour-hours. Variable overhead is applied at the rate of $10 per direct labour-hour. The materials purchase price was $0.470.(Attempt the following questions in the order listed.,)

Explanation / Answer

6) Total Direct Labor Cost Variance = Direct Labor Rate Variance+Direct labor Efficiency Variance

= $16,620 F-$36,000 U = $19,380 U

Direct Labor Cost Variance = Std Labor cost - Actual labor cost

-$19,380 = Std Labor cost - $235,380

Std Labor cost = $235,380-$19,380 = $216,000

Std Labor cost = Std labor hrs for actual output*Std labor rate

Std labor rate = Std Labor cost/Std labor hrs for actual output

= $216,000/12,000 = $18 per hour

Labor Efficiency Variance = (Std Hrs - Actual Hrs)*Std Rate

-$36,000 = (12,000 - Actual hrs)*$18

-$36,000/$18 = 12,000 - Actual hrs

Actual hrs = 12,000+2,000 = 14,000

Therefore Actual labor hours worked are 14,000 hours

7) Standard Material Qty required per unit of output = 330,000 units/30,000 units of output

= 11 units

Standard Cost of Material per unit = 11 units*$0.47 per unit = $5.17

Standard Labor hours per unit = 12,000 hrs/30,000 = 0.40 hour per unit

Standard Labor cost per unit = $18 per hour*0.40 hr = $7.20 per unit

Standard Variable Overhead cost per unit = $10*0.40 hr = $4 per unit

Standard Cost per unit = Direct Material+Direct Labor+Variable Overhead per unit

= $5.17+$7.20+$4.00 = $16.37 per unit

8) Budgeted Fixed Overhead = Budgeted units*Fixed overhead cost allocation rate

Allocated Fixed Overhead = Actual units of output*Fixed overhead cost allocation rate

Fixed Overhead Volume Variance = Allocated Fixed Overhead - Budgeted Fixed Overhead

$67,200 = (Actual units - Budgeted Units)*Fixed overhead cost allocation rate

$67,200 = (30,000 - 22,500)*Fixed overhead cost allocation rate

Fixed overhead cost allocation rate = $67,200/7,500 = $8.96 per unit

9) Allocated Fixed Overhead = 30,000 units*$8.96 per unit = $268,800

Budgeted Fixed Overhead = 22,500 units*$8.96 per unit = $201,600

Fixed Overhead Budget Variance = Budgeted Fixed Overhead - Actual Fixed Overhead

-$4,300 U = $201,600 - Actual Fixed Overhead

Actual Fixed Overhead = $201,600+$4,300 = $205,900

10) Over-applied fixed overhead = Allocated Fixed Overhead - Actual Fixed Overhead

= $268,800 - $205,900 = $62,900

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