Trico Company set the following standard unit costs for its single product. The

Question

Trico Company set the following standard unit costs for its single product.

   

  

The predetermined overhead rate is based on a planned operating volume of 50% of the productive capacity of 80,000 units per quarter. The following flexible budget information is available.

  

  

During the current quarter, the company operated at 60% of capacity and produced 48,000 units of product; actual direct labor totaled 377,000 hours. Units produced were assigned the following standard costs:

  

  

    

     Direct materials (25 Ibs. @ $4 per Ib.) $ 100.00   Direct labor (8 hrs. @ $8 per hr.) 64.00   Factory overhead—variable (8 hrs. @ $5 per hr.) 40.00   Factory overhead—fixed (8 hrs. @ $7 per hr.) 56.00      Total standard cost $ 260.00   

Explanation / Answer

1. Direct Material variances:

Direct Material cost variance: ( Standard cost for actual output - Actual cost) = ( $ 100 x 48,000 - $ 4,899,500) = $ 99,500 U

Direct Material price variance: ( Standard price per unit - Actual price per unit) x Actual quantity purchased = ( $ 4 - $ 4.10 ) x 1,195,000 = $ 119,500 U

Direct Material quantity variance: ( Standard quantity for actual output - Actual quantity used) x Standard price per unit = ( 25 lbs. x 48,000 - 1,195,000) x $ 4 = $ 20,000 F

2. Direct Labor variances:

Direct labor total variance: ( Standard labor cost for actual output - Actual labor cost) = ( $ 64 x 48,000 - $ 2,921,750) = $ 150,250 F

Direct labor rate variance: ( Standard rate per labor hour - Actual rate per labor hour) x Actual hours worked = ( $ 8 - $ 7.75 ) x 377,000 = $ 94,250 F

Direct labor efficiency variance: ( Standard labor hours for actual output - Actual hours worked) x Standard rate per labor hour = ( 384,000 - 377,000 ) x $ 8 = $ 56,000 F

3. Overhead controllable and volume variances:

Controllable variance

Fixed overhead volume variance:

Actual overhead $ 6,473,019 Budgeted overhead $ 4,608,000 Controllable variance $ 1,865,019 U

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