Antuan Company set the following standard costs for one unit of its product. The

Question

Antuan Company set the following standard costs for one unit of its product.

The predetermined overhead rate ($18.50 per direct labor hour) is based on an expected volume of 75% of the factory’s capacity of 20,000 units per month. Following are the company’s budgeted overhead costs per month at the 75% capacity level.

15,000

The company incurred the following actual costs when it operated at 75% of capacity in October.

rev: 03_28_2018_QC_CS-122864

3. Compute the direct materials cost variance, including its price and quantity variances.

AQ = Actual Quantity
SQ = Standard Quantity
AP = Actual Price
SP = Standard Price

Direct materials (3.0 Ibs. @ $5.00 per Ib.) $ 15.00 Direct labor (2.0 hrs. @ $11.00 per hr.) 22.00 Overhead (2.0 hrs. @ $18.50 per hr.) 37.00 Total standard cost $ 74.00

Explanation / Answer

Units at 75% capacity = 20000 units * 75% = 15000 units

Direct Material cost variance = Std cost for actual production - Actual cost
= (15000 units * 15) - 237150 = $12150 U

Direct Material price variance = (SP - AP) * AQ
= (5.0 - 5.10) * 46500 = $4650 U

Direct Material Qty variance = (SQ - AQ) * SP
= (15000 units * 3lbs - 46500 lbs)*5.0
= (45000 lbs - 46500 lbs)* 5.0 = $7500 U

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