1e8 Company set the following standard unit costs for its single product Direct

Question

1e8 Company set the following standard unit costs for its single product Direct materials (28 lbs. @$4 per lb.) Direct labor (8 hrs. @ $8 per hr.) Factory ove Factory overhead-fixed (8 hrs.$7 per hr) $112.00 64.00 40.00 56.00 iable (8 hrs. $5 per hr.) Total standard cost $272.00 The predetermined overhead rate is based on a planned operating volume of 70% of he productive capacity of 60,000 units per quarter. The following flexible budget information is available. Operating Levels on in units Standard direct labor hours 60% 36,000 288,000 42,000 336,000 48,000 384,000 Budgeted overhead $2,352,00o $2,352,000 $2,352,000 $1,440,000 $1,680,000 $1,920,000 Fixed factory overhead actual direct labor totaled 379,000 hours. Units produced were assigned the following standard costs s 5,376,000 Direct materials (1,344,000 lbs. $4 per lb) Direct labor (384,000 hrs @$8 per hr.) Factory overhead (384,000 hrs.$12 per hr.) $13,056,000 Total standard cost

Explanation / Answer

1) Direct Material Price Variance = (Standard Price - Actual Price)*Actual Quantity

= ($4.00-$4.10)*1,339,000 lbs. = $133,900 Unfavourable

Direct Material Quantity Variance = (Standard Quantity - Actual Quantity)*Standard Price

= (1,344,000 - 1,339,000)*$4.00 = $20,000 Favourable

Direct Material Cost Variance = Material Price Variance+Material Quantity Variance

= ($133,900)+$20,000 = ($113,900) (i.e. $113,900 Unfavourable)

2) Direct Labor Rate Variance = (Standard rate - Actual rate)*Actual Hours

= ($8.00-$7.75)*379,000 hours = $94,750 Favourable

Direct Labor Efficiency Variance = (Standard hours - Actual hours)*Standard rate

= (384,000-379,000)*$8.00 = $40,000 Favourable

Direct Labor Variance = Direct Labor rate variance+Direct Labor efficiency variance

= $94,750+$40,000 = $134,750 Favourable

3) Controllable Variance = Budgeted Overhead (80% capacity) - Actual Overhead

= ($2,352,000+$1,920,000) - ($3,360,943+$3,146,415) = $4,272,000-$6,507,358

= $2,235,358 Unfavourable

Fixed Overhead Volume Variance = Budgeted Fixed Overhead - Fixed Overhead Cost Applied

= $2,352,000 - (379,000 hours*$7) = $301,000 Unfavourable

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