The standard cost sheet for Chambers Company, which manufactures one product, fo

Question

The standard cost sheet for Chambers Company, which manufactures one product, follows: Direct materials, 30 yards at $2.50 per yard Direct labor, 4 hours at $25 per hour Factory overhead applied at 85% of direct labor variable costs $60; fixed costs- $25) Variable selling and administrative Fixed selling and administrative $ 75 100 85 75 51 $ 386 Total unit costs Standards have been computed based on a master budget activity level of 29,900 direct labor-hours per month. Actual activity for the past month was as follows: Materials used Direct labor Total factory overhead 239,000 yards at $2.55 per yard 30,200 hours at $26.20 per hour $690,000 7,400 units

Explanation / Answer

Solution:

1) For effeciecy variance,

Effeciency variance refers to standard variable overheads for production less budgeted variable overhead for actual hours. Here standard variable overhead rate = $ 15 ($60/4 hours)

variable overhead efficiency variance = standard variable overhead rate per unit* actual production - standard variable overhead rate per hour * actual hours

= (60 * 7400) - (15*30200)

= 9000 (unfavorable)

2) For fixed overhead

Production volume variance refers to absorbed fixed overheads less budgeted fied overheads. Here budgeted production in units is 7475 ( Budgeted hours (29,900) / hours required per unit (4)). So,

Fixed overhead volume variance = (actual output - budgeted output) * standard fixed overhead rate per unit

= (7400 - 7475) * 25

= $1875 (unfavorable)

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