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

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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 80% of the productive capacity of 50,000 units per quarter. The following flexible budget information is available.

During the current quarter, the company operated at 90% of capacity and produced 45,000 units of product; actual direct labor totaled 266,000 hours. Units produced were assigned the following standard costs.

Actual costs incurred during the current quarter follow.

1. Compute the direct materials cost variance, including its price and quantity variances. 2. Compute the direct labor cost variance, including its rate and efficiency variances. 3. Compute the overhead controllable and volume variances.

Direct materials (30 Ibs. @ $4.40 per Ib.) $ 132.00 Direct labor (6 hrs. @ $14 per hr.) 84.00 Factory overhead—variable (6 hrs. @ $8 per hr.) 48.00 Factory overhead—fixed (6 hrs. @ $11 per hr.) 66.00 Total standard cost $ 330.00

Explanation / Answer

Solution 1:

Direct material price variance = $2,399,400 U

Direct material quantity variance = $74,800 F

Direct material cost variance = $2,399,400 U + $74,800 = $2,324,600 U

Solution 2:

Direct labor rate variance = $399,000 F

Direct labor efficiency variance = $56,000 F

Direct labor cost variance = $399,000 F + $56,000 F = $455,000 F

Solution 3:

Budgeted overhead = (45000*6*$8) + (40000*6*$11) = $4,800,000

Actual overhead = $2,443,000 + $2,287,000 = $4,730,000

Overhead controllable variance = Budgeted overhead - Actual overhead = $4,800,000 - $4,730,000 = $70,000 F

Budgeted fixed overhead = 40000 * 6*$11 = $2,640,000

Fixed overhead applied = 45000 * 6 * $11 = $2,970,000

Fixed overhead volume variance = Fixed overhead applied - Budgeted fixed overhead = $2,970,000 - $2,640,000 = $330,000 F

Direct Material Cost Variance Actual Cost Standard cost for actual quantity Standard Cost AQ * AP = AQ * SP = SQ * SP = 1333000 $6.20 $8,264,600.00 1333000 $4.40 $5,865,200.00 1350000 $4.40 $5,940,000.00 $2,399,400 U $74,800 F Direct Material Price Variance Direct Material Qty variance

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

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

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