Flandro Company uses a standard cost system and sets its predetermined overhead
ID: 2563316 • Letter: F
Question
Flandro Company uses a standard cost system and sets its predetermined overhead rate on the basis of direct labor-hours. The following data are taken from the company’s planning budget for the current year:
The standard cost card for the company’s only product is given below:
During the year, the company produced 7,280 units of product and incurred the following actual results:
Required:
1. Create a new standard cost card that separates the variable manufacturing overhead per unit and the fixed manufacturing overhead per unit.
2. Compute the materials price and quantity variances. Also, compute the labor rate and efficiency variances.
3. Compute the variable overhead rate and efficiency variances. Also, compute the fixed overhead budget and volume variances.
Denominator activity (direct labor-hours) 14,000 Variable manufacturing overhead cost $ 49,700 Fixed manufacturing overhead cost $ 97,300Explanation / Answer
Solution:
1.
Direct materials, 4 yards at $2.35 per yard.........................
$9.40
Direct labor, 2 DLH at $8.75 per DLH................................
17.50
Variable manufacturing overhead, 2 DLH at $3.55 per DLH*.
3.55
Fixed manufacturing overhead, 2 DLH at $6.95 per DLH**..
6.95
Standard cost per unit.....................................................
$37.40
*
$49,700 ÷ 14,000 DLHs = $3.55 per DLH.
**
$97,300 ÷ 14,000 DLHs = $6.95 per DLH.
2.
Materials variances:
Materials price variance = AQ (AP – SP)
46,200 yards ($2.25 per yard – $2.35 per yard) = $4,620 F
Materials quantity variance = SP (AQ – SQ)
$2.35 per yard (30,030 yards – 29,120 yards*) = $2,138.5 U
*7,280 units × 4 yards per unit = 29,120 yards
Labor variances:
Labor rate variance = AH (AR – SR)
15,000 DLHs ($8.35 per DLH – $8.75 per DLH) = $6000 F
Labor efficiency variance = SR (AH – SH)
$8.75 per DLH (15,000 DLHs – 14560 DLHs*) = $3,850 U
*7,280 units × 2 DLH per unit = 14560 DLHs
3.
Variable overhead spending variance = (AH × AR) – (AH × SR)
($50100) – (15000 DLHs × 3.55 per DLH) = $3150 F
Variable overhead efficiency variance = SR (AH – SH)
$3.55 per DLH (15,000 DLHs – 14,560 DLHs) = $1,562 U
Volume Variance = Fixed portion of the predetermined overhead rate
× (Denominator hours Standard hours allowed)
= $6.95 per DLH (14,000 DLHs 14560 DLHs)
= $3,892 F
Budget variance = Actual fixed overhead cost - Budgeted fixed overhead cost
Budget variance = $99,750 - $97,300
Budget variance = $2,450 U
1.
Direct materials, 4 yards at $2.35 per yard.........................
$9.40
Direct labor, 2 DLH at $8.75 per DLH................................
17.50
Variable manufacturing overhead, 2 DLH at $3.55 per DLH*.
3.55
Fixed manufacturing overhead, 2 DLH at $6.95 per DLH**..
6.95
Standard cost per unit.....................................................
$37.40
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