Giovanni Company produces a product that requires four standard gallons per unit

Question

Giovanni Company produces a product that requires four standard gallons per unit. The standard price is $34.00 per gallon. Assume the company produced 3,500 units of product. The 3,500 units required 14,400 gallons, which were purchased at $33.25 per gallon. The product requires five standard hours per unit at a standard hourly rate of $30 per hour. The 3,500 units required 17,700 hours at an hourly rate of $30.50 per hour. The standard variable overhead cost per unit is $3.50 per hour. The actual variable factory overhead was $63,400. The standard fixed overhead cost per unit is $1.80 per hour at 17,000 hours, which is 100% of normal capacity.

Explanation / Answer

Working:

1.Materials price variance = (Standard Price - Actual price)*Actual Quantity

Materials price variance = (34-33.25)*14400

Materials price variance = 10800 Favorable

2. Materials usage/quantity variance = (Standard Quantity - Actual Quantity)Standard Price

Materials usage/quantity variance = (4*3500 - 14400)*34

Materials usage/quantity variance = $ 13600 Unfavorable

3. Labor rate variance = (Standard Rate - Actual Rate)*Actual Hour

Labor rate variance = (30-30.50)*17700

Labor rate variance = $ 8850 Unfavorable

4. Labor efficiency variance = (Standard Hour - Actual Hour)Standard Rate

Labor efficiency variance = (5*3500-17700)*30

Labor efficiency variance = 6000 Unfavorable

5.Factory overhead controllable = (Standard Rate*Actual Hour - Actual cost)

Factory overhead controllable = (3.50*17700 - 63400)

Factory overhead controllable = $ 1450 Unfavorable

6. Factory overhead volume = (17500-17700)*3.50 + (17500 - 17000)*1.80

Factory overhead volume = $ 200 Favorable

Giovanni Company Income Statement Through Gross Profit For the Year Ended December 31, 2014 Sales 1400000 Cost of goods sold at Standard     1093750 Gross profit-at standard    306250                         Favorable        Unfavorable Less variances from standard cost:     Direct materials price 10800     Direct materials quantity 13600      Direct labor rate 8850     Direct labor time 6000 Factory overhead controllable 1450 Factory overhead volume 200 18900 Gross profit 287350

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