Dryer Corporation manufactures fertilizer. The standard cost for one bag is as f

Question

Dryer Corporation manufactures fertilizer. The standard cost for one bag is as follows:

Cost Element Quantity price cost

Direct Materials 50 lbs $.10 $5.00

Direct Labor .5hrs 10.00 5.00

$13.00

Manufacturing Overhead .5hrs 6.00 3.00

During the month the following transactions occurred in manufacturing 150,000 bags:

(1) Purchased and used 7,560,000 pounds at $.09 per pound.

(2) 72,000 direct labor hours were worked at a total cost of $712,800.

(3) Variable manufacturing overhead incurred was $318,000 and fixed overhead was $168,000.

(4) The manufacturing overhead rate of $6.00 is based on a normal capacity of 81,000 direct labor hours. The total budget at this capacity is $324,000 variable and $162,000 fixed.

Instructions: Compute and label (“f” for favorable and “U” for unfavorable) the variances listed below. Present supporting calculations.

(a) All Direct material variances: (TMV: $69,600F; MPV:$75,600F; MQV: $6,000U)

(b) All Direct Labor variances: (TLV: $37,200F; LPV: $7,200F; LQV: $30,000)

(c) All Overhead variances: (TOhV: $36,000U; Cont var: $24,000U; Vol Var: $12,000U)

Explanation / Answer

Direct Material variances:

Total material variance : Actual cost-Standard cost =( 7,560,000 x 0.09) - (150,000 x 5) = $ 69,600 F

Direct material price variance = ( Standard unit price - Actual unit price) x Actual quantity of materials used=(0.10-0.09) x 7560,000 = 75,600 F

Direct material quantity variance = ( Standard quantity specified for actual production- Actual quantity used) x Standard price per unit =(75,00,000 -75,60,000) x 0.10 = 6000 U

b) Direct labor variances:

Total labor variance = Standard direct labor cost - Actual direct labor cost = (150,000 x 5- 712,800) = 37,200 F

Labor price variance =( Standard rate - Actual rate) x Actual hours worked = (10-9.9) x 72,000 = 7200 F

Labor quantity variance = ( Standard hours for actual quantity- Actual hours worked ) Standard rate per hour

=(75,000-72,000) x 10 = 30,000 F

c) Overhead variances:

Total overhead variance =( Standard recovery rate x actual production - Actual total overhead cost incurred)

= (3x150,000- 486,000) = 36,000 U

Fixed overhead volume variance = (Standard hours for actual production- Normal capacity) x Standard recovery rate per hour = ( 75,000 -81,000) x 162,000/81,000 = 12,000 U

Variable overhead volume variance =( 75000-81,000) x 324,000/81,000 = 24,000 U

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