Standard Costs and Variances DROBLEM 12A-8 Comprehensive Standard Cost Variances

Question

Standard Costs and Variances DROBLEM 12A-8 Comprehensive Standard Cost Variances [L01, LO2, LO3, L04] dro Company uses a standard cost system and sets predetermined overhead rates on the basis of direct labor-hours. The following data are taken from the company's budget for the current year: 29 ,000 /s Variable manufacturing overhead cost . .. . .. .. . . Fixed manufacturing overhead cost . .. . .. $25,000 $59,000 The standard cost card for the company's only product is given below: Direct materials, 3 yards at $4.40 per yard . . .. . .. .$13.20 Manufacturing overhead, 140% of direct labor cost . . . . . . . . Standard cost per unit 16.80 .. $42.00 During the year, the company produced 6,000 units of product and incurred the following costs: Materials used in production (in yards) Direct labor cost incurred, 5,800 hours at $13 per hour Variable manufacturing overhead cost incurred Fixed manufacturing overhead cost incurred 18,500 $75,400 $60,400 Required: 1. Redo the standard cost card in a clearer, more usable format by detailing the variable and fixed overhead cost elements. Prepare an analysis of the variances for direct materials and direct labor for the year. Prepare an analysis of the variances for variable and fixed overhead What effect, if any, does the choice of a denominator activity level have on unit standard costs? Is the volume variance a controllable variance from a spending point of view? Explain. 2. 3. 4. for the year. ru 10 n comprehensive Standard Cost Variances lL01, L02, L03,L04]

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1. Standard Cost Card Standard Q or Hours Standard Price or rate Standard Cost Direct Materials 3 4.4 13.2 Direct Labors 1 12 12 Variable Overhead (25000/5000 hours)=5 Per hour 1 5 5 Fixed Overhead (59000/5000 hours)=11.8 per hour 1 11.8 11.8 Standard Cost per unit 42 2. Material Variance Material Price variance= Actual Q(Actual Price-Standard Price) Material Price variance= 24000(4.4-4) Material Price variance= 9600 U Material Quantity Variance=Standard Price(Actual Q used-Standard Q used) Actual Q=18500 Standard Q=6000 Units*3 Yard per unit=18000 Material Quantity Variance=4.4(18500-18000) Material Quantity Variance=2200 U 2. Labor Variance Labor Rate variance= Actual Q(Actual Rate-Standard Rate) Labor Rate variance= 5800(13-12) Labor Rate variance= 5800 U Labor Efficiency Variance=Standard Rate(Actual Q used-Standard Q used) Actual Q=5800 Standard Q=6000 Units*1 Hour per unit=6000 Labor Efficiency Variance=12(5800-6000) Labor Efficiency Variance=2400 F 3. Fixed and Variable Ovh Variance Variable OVH Rate variance= Actual Q(Actual Rate-Standard Rate) Variable OVH Rate variance= 29580-(5800*5) Variable OVH Rate variance= 580 U Variable OVH Efficiency Variance=Standard Rate(Actual Q used-Standard Q used) Actual Q=5800 Standard Q=6000 Units*1 Hour per unit=6000 Variable OVH Efficiency Variance=5(5800-6000) Variable OVH Efficiency Variance=1000 F Fixed Overhead Budget=60400-59000=1400 U Fixed Overhead Volume=6000-5000(11.8)= 11800 U 4 Higher the denominator activity, Lower the standard cost per unit Volume variance can not be controlled by controlling spending.

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