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

Question

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

The predetermined overhead rate is based on a planned operating volume of 80% of the productive capacity of 67,000 units per quarter. The following flexible budget information is available.

During the current quarter, the company operated at 90% of capacity and produced 60,300 units of product; actual direct labor totaled 399,200 hours. Units produced were assigned the following standard costs.

Actual costs incurred during the current quarter follow.

Required:

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

2. Compute the direct labor cost variance, including its rate and efficiency variances.

3. Compute the overhead controllable and volume variances.

Direct materials (30 Ibs. @ $4.80 per Ib.) $ 144.00 Direct labor (7 hrs. @ $14 per hr.) 98.00 Factory overhead—variable (7 hrs. @ $6 per hr.) 42.00 Factory overhead—fixed (7 hrs. @ $9 per hr.) 63.00 Total standard cost $ 347.00

Explanation / Answer

1) Direct material cost variance

  a) direct material price variance = Actual Quantity (Standard price - Actual price)

Actual Quantity = 1,711,000 lbs.

Standard prie = $4.80 per lbs.

Actual price = $6.30 per lbs.

DM price vaiance = 1,711,000 ($4.80 - $6.30)

= $2,566,500 un favourable

b) Direct material quantity varience = Standard price (Standard quantity - Actual quantity)

standard price = $4.80

standard quantity = 1,809,000 lbs.

actual quantity = 1,711,000 lbs.

DM quantity varience = $4.80 (1,711,000 - 1,809,000)

= $4.80 (98000)

= $4,70,400 favourable

2) Direct labor cost varience

  a) Direct labor rate varience = Actual hour (standard rate - actual rate)

Actual hour = 3,99,200 hour

Standard rate = $14 per hour

Actual rate = $11.20 per hour

DL rate varience = 3,99,200 ($14 - $11.20)

= $1,117,760 favourable

b) Direct labor efficiency varience = Standard rate (standard hour - actual hour)

sandard rate = $14 per hour

actual hour = 3,99,200 hour

standard hour = 4,22,100 hour

DL efficiency varience = $14 (4,22,100 - 3,99,200)

= $3,20,600 favourable

3) Overhead controllabe and volume varience

  a) Overhead controllable varience = Actual overhead - budgeted overhead

Actual overhead = $3,084,100

Budgeted overhead = $2,532,600

overhead controllable varience = $3,084,100 - $2,532,600

= $5,51,500 unfavorable

b) Fixed overhead volume varience = Budgeted fixed overhead - fixed overhead cost applied

budgeted fixed overhead = $3,376,800

fixed overhead cost applied = 3,99,200 * $9 per hour = $3,592,800

fixed overhead volume varience = $3,376,800 - $3,592,800

= $2,16,000 favorable

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