Chapter 7 Problem 5 5. P26-B3 Straightforward variance analysis (L.O. 5) Arrow E

ID: 2370386 • Letter: C

Question

Chapter 7 Problem 5

5. P26-B3 Straightforward variance analysis (L.O. 5)

Arrow Enterprises uses a standard costing system. The standard cost sheet for product no. 549 follows.

Direct materials: 4 units @ $6.50 $26.00

Direct labor: 8 hours @ $8.50 68

Variable factory overhead: 8 hours @ $7.00 56

Fixed factory overhead: 8 hours @ 2.5 20

Total standard cost per unit $170.00

The following information pertains to activity for December:

1. Direct materials acquired during the month amounted to 26,350 units at $6.40 per unit. All materials were consumed in operations.

2. Arrow incurred an average wage rate of $8.75 for 51,400 hours of activity.

3. Total overhead incurred amounted to $508,400. Budgeted fixed overhead totals $1.8 million and is spread evenly throughout the year.

4. Actual production amounted to 6,500 completed units.

Instructions:

a. Compute Arrow's direct material variances.

b. Compute Arrow's direct labor variances.

c. Compute Arrow's variances for factory overhead.

a. Compute Arrow's direct material variances.

= SQ*SR - AQ*AR = 26000*6.5 -26350*6.4 = $360 (F)

b. Compute Arrow's direct labor variances.

= SH*SR - AH*AR = 52000*8.50 -51400*8.75 = $7750 (U)

c. Compute Arrow's variances for factory overhead

= SH*SR- Actual Ovehead = 52000*9.50 - 508400 = $ 14400 (U)

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