3. (30 points) Thompson Company uses a standard cost system for its single produ

Question

3. (30 points)Thompson Company uses a standard cost system for its single product. The following data are available:

Actual experience for the current year:

Purchases of raw materials (30,000 yards at $2.50 per yard) $75,000

Raw materials used 20,000 yards

Direct labor costs (10,000 hours at $8.60 per hour $86,000

Actual variable overhead cost $35,9000

Units produced 4,800 units

Standards per unit of product:

Raw materials 4 yards at $2.6 per yard

Direct labor 2 hours at $9.00 per hour

Variable overhead $21.6 per direct labor hour

Required:

Compute the following variances for raw materials, direct labor, and variable overhead, assuming that the price variance for materials is recognized at point of purchase:

Explanation / Answer

a. & b. Raw Materials:

Materials price variance = AQ (AP - SP)

= 11,000 yards ($11.00 per yard - $13.00 per yard)

= 11,000 yards (-$2.00 per yard) = $22,000 F
SQ = 12,600 units

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