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

Question

Trico Company set the following standard unit costs for its single product. Direct materials (28 Ibs. $5.00 per lb.) Direct labor (10 hrs. $10.00 per hr.) Factory overheadvariable (10 hrs. $6.00 per hr.) Factory overhead -fixed (10 hrs. $9.00 per hr.) $140.00 00.00 60.00 90.00 Total standard cost $390.00 The predetermined overhead rate is based on a planned operating volume of 60% of the productive capacity of 40,000 units per quarter. The following flexible budget information is available Operating Levels 50% 20,000 200,000 60% 24,000 240,000 70% Production in units Standard direct labor hours Budgeted overhead 28,000 280,000 Fixed factory overhead Variable factory overhead $ 2,160,000 2,160,000 2,160,000 $1,200,000 $1,440,000 $ 1,680,000 During the current quarter, the company operated at 70% of capacity and produced 28,000 units of product; actual direct labor totaled 276,000 hours. Units produced were assigned the following standard costs Direct materials (784,000 lbs.@ $5.00 per lb.) Direct labor (280,000 hrs. $10.00 per hr.) Factory overhead (280,000 hrs.$15.00 per hr.) $ 3,920,000 2,800,000 4,200,000 Total standard cost $ 10,920,000

Explanation / Answer

Direct labor rate variance = ( std rate - actual rate ) actual hrs

                                          = ($10 - $9.75) 276,000

                                          = 69,000(F)

Direct labor efficiency variance

= (280,000 - 276,000)10

= 40,000(F)

Actual cost

AH * AR = 276,000 *9.75 = $2,691,000

AH * SR = 276,000 *10 = $2,760,000

standard cost = 280,000 *10 = $2,800,000

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