Problem 25-1A Partially correct answer. Your answer is partially correct. Try ag

Question

Problem 25-1A Partially correct answer. Your answer is partially correct. Try again. Costello Corporation manufactures a single product. The standard cost per unit of product is shown below. Direct materials—3 pound plastic at $6.83 per pound $ 20.49 Direct labor—1.50 hours at $12.00 per hour 18.00 Variable manufacturing overhead 9.00 Fixed manufacturing overhead 9.00 Total standard cost per unit $56.49 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 8,250 direct labor hours (5,500 units) for the month. The master budget showed total variable costs of $49,500 ($6.00 per hour) and total fixed overhead costs of $49,500 ($6.00 per hour). Actual costs for October in producing 3,400 units were as follows. Direct materials (10,310 pounds) $ 71,551 Direct labor (4,950 hours) 60,489 Variable overhead 43,144 Fixed overhead 19,916 Total manufacturing costs $195,100 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. (a) Compute all of the materials and labor variances. (Round answers to 0 decimal places, e.g. 125.)

Total materials variance

Materials price variance

Materials quantity variance

Total labor variance

Labor price variance

Labor quantity variance

(b) Compute the total overhead variance.

Total overhead variance

Explanation / Answer

Solution:

Part 1(a) – Total Material Variance = Material Price Variance + Material Usage Variance = 1134 U + 751 U = $1,885 U

Part 1(b) Material Price Variance

Material Price Variance is the variance arises in the material cost due to difference in actual material purchase price from standard material price. Mathematically, it is calculated as below:

Material Price Variance = Actual Quantity (Standard Price – Actual Price)

Note --- Here actual quantity means actual quantity of material PURCHASED. If the question does not provide the information about material purchase, it is taken as equal to material consumed.

Direct Material Price Variance

Actual Price (AP) ($71,551/ 10,310 pounds)

$6.94

per pound

Standard Price (SP)

$6.83

per pound

Variance or Difference in Price

$0.11

per pound

x Actual Quantity PURCHASED

10310

pounds

Material Price Variance

$1,134

Unfavorable

Part 1(c) --

Material Quantity/Efficiency/Usage Variance

Material Efficiency (Usage) Variance measures variance in material cost due to usage/consumption of materials. It is calculated as below:

Material Quantity Variance = Standard Price (Standard Quantity for Actual Production – Actual Quantity USED)

Note --- Here actual quantity means actual quantity of material CONSUMED/USED

Direct Material Quantity Variance

Standard Quantity Allowed for actual production:

Actual Production/Activity

3400

Units

x Allowed Standard Quantity Per Unit

3

pounds

Total Standard Quantity Allowed for actual production (SQAP)

10200

pounds

Actual Quantity USED (AQU)

10310

pounds

Variance or Difference in Quantity

110

pounds

x Standard Price (SP)

$6.83

per pound

Material Quantity Variance

$751

Unfavorable

Part 1(d) - Labor Rate/Price Variance

Labor Price Variance – It arises due to difference in actual rate paid from standard rate. It is calculated as below:

Labor Price Variance = Actual Time (Standard Rate per hour – Actual Rate per hour)

Here, actual time means time for which wage has been paid.

Labor Rate Variance

Actual Hourly Rate (AHR) (Actual labor cost $60,489 / Actual Direct labor hour 4950)

$12.22

Per Hour

Standard Hourly Rate (SHR)

$12.00

Per Hour

Variance or Difference in Rate

$0.22

Per Hour

x Actual Labor Hours worked

4950

Hours

Labor Rate Variance

$1,089

Unfavorable

Part 1(e) Labor Efficiency / Quantity / Usage Variance

Labor Efficiency Variance – It arises due to variation in the working hours from the set standard.

Labor Efficiency Variance

Standard Hours Allowed for actual production:

Actual Production/Activity

3400

Units

x Allowed Standard Hours Per Unit

1.5

hours

Total Standard Hours Allowed for actual production (SHAP)

5100

hours

Actual Labor Hours Worked (AH)

4950

hours

Variance or Difference in Quantity (AH - SHAP)

150

hours

x Standard Hourly Rate (SHR)

$12

per hour

Labor Efficiency Variance

$1,800

Favorable

Total Labor Variance = Labor Rate Variance 1089 U + Labor Quantity Variance $1,800 F = $711 F

Hope the above calculations, working and explanations are clear to you and help you in understanding the concept of question.... please rate my answer...in case any doubt, post a comment and I will try to resolve the doubt ASAP…thank you

Direct Material Price Variance

Actual Price (AP) ($71,551/ 10,310 pounds)

$6.94

per pound

Standard Price (SP)

$6.83

per pound

Variance or Difference in Price

$0.11

per pound

x Actual Quantity PURCHASED

10310

pounds

Material Price Variance

$1,134

Unfavorable

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