Ayala Corporation accumulates the following data relative to jobs started and fi
ID: 2456001 • Letter: A
Question
Ayala Corporation accumulates the following data relative to jobs started and finished during the month of June 2014.
Costs and Production Data
Actual
Standard
Overhead is applied on the basis of standard machine hours. Three hours of machine time are required for each direct labor hour. The jobs were sold for $400,000. Selling and administrative expenses were $40,000. Assume that the amount of raw materials purchased equaled the amount used.
Instructions
Compute all of the variances for (1) direct materials and (2) direct labor.
LQV $4,800 F
Compute the total overhead variance.
Prepare an income statement for management. (Ignore income taxes.)
Costs and Production Data
Actual
Standard
Raw materials unit cost $2.25 $2.10 Raw materials units used 10,600 10,000 Direct labor payroll $120,960 $120,000 Direct labor hours worked 14,400 15,000 Manufacturing overhead incurred $189,500 Manufacturing overhead applied $193,500 Machine hours expected to be used at normal capacity 42,500 Budgeted fixed overhead for June $55,250 Variable overhead rate per machine hour $3.00 Fixed overhead rate per machine hour $1.30Explanation / Answer
((a))
(1) Direct Material
(A) Material Cost Variance = (Standard Rate X Standard Quantity) - (Actual rate X Actual Quantity)
= (10,000 X2.1) - (10,600 X 2.25)
= $ 2,850 U
(B) Material Price variance = (Standard Price - Actual Price) X Atual Quantity
= (2.1 -2.25) X 10,600
= $ 1,590 U
(c) Material Quantity Variance = (Standard Quantity - Actual Quantity) X Standard Price
= (10,000 10,600) X 2.10
= S1,290 U
(2) Direct Labour
(a) Direct Labour Cost = (Standard rate X Standard Hours) - (Actual Rate X Actual hours)
= 120,000 -120,960
= $960 U
b) Labour rate variance = (standard rate - actual rate) X actual hours
Standard rate = 120,000
150,000
= $8 per hour
Actual rate = 120,960
14,4000
= $8.4/hr
Labour risk variane = (8 - 8.4)X14,400
= $5,760 U
(c) Labour efficiency variance = (standard price - actua price ) X Standard rate
=(15000-14400)X8
= $4800 F
((b)) Take overhead Vriance = Standard Overhead cost - Actual Overhead Cost
Standard Variable overhead cost = 3 X 42,500
= $127,500
Sandard fixed overhead cost = 1.3 X 42,500
= S55,250
Total Standard Overhead Cost = 127,500 + 55,250
= $182,750
Total overhead variance = 182,750 - 189,500
= $ 6,750 U
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