Problem 23-7A Costello Corporation manufactures a single product. The standard c

Question

Problem 23-7A Costello Corporation manufactures a single product. The standard cost per unit of product is shown below. Direct materials—1 pound plastic at $6.86 per pound $ 6.86 Direct labor—1.50 hours at $12.00 per hour 18.00 Variable manufacturing overhead 11.25 Fixed manufacturing overhead 6.75 Total standard cost per unit $42.86 The predetermined manufacturing overhead rate is $12 per direct labor hour ($18.00 ÷ 1.50). It was computed from a master manufacturing overhead budget based on normal production of 7,950 direct labor hours (5,300 units) for the month. The master budget showed total variable costs of $59,625 ($7.50 per hour) and total fixed overhead costs of $35,775 ($4.50 per hour). Actual costs for October in producing 4,500 units were as follows. Direct materials (4,670 pounds) $ 33,297 Direct labor (6,560 hours) 80,950 Variable overhead 61,155 Fixed overhead 21,925 Total manufacturing costs $197,327 The purchasing department buys the quantities of raw materials that are expected to be used in production each month. Raw materials inventories, therefore, can be ignored. Compute the overhead controllable variance and the overhead volume variance. Overhead controllable variance $ Overhead volume variance $

Explanation / Answer

Solution:

Budgeted variable overhead for actual production = standard hours * standard rate = (4500*1.5)*$7.50 = $50,625

Budgeted fixed overhead for actual production = $35,775

Total budgeted overhead for actual production = $50,625 + $35,775 = $86,400

Actual overhead incurred = $61,155 + $21,925 = $83,080

Overhead controllable variance = Budgeted overhead - Actual overhead = $86,400 - $83,080 = $3,320 F

Overhead applied = Standard hours * Overhead rate = (4500*1.50) * $12 = $81,000

Budgeted overhead = $86,400

Fixed overhead volume variannce = Overhead applied - Budgeted overhead

= $81,000 - $86,400 = $5,400 U

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