A company has developed the following standard cost data based on a denominator
ID: 2466303 • Letter: A
Question
A company has developed the following standard cost data based on a denominator volume of 60,000 direct labor hours (DLHs), which is 75% of the firm's capacity. Budgeted fixed overhead is $360,000 and budgeted variable overhead is $180,000 at this level of activity.
Direct material (3 lbs at $2.00/lb) $6.00
Direct labor (0.5 hrs at $8.00/hr) $4.00
Factory overhead (0.5 hrs at $9.00/hr) $4.50
Total standard cost per unit $14.50
During the last period, the company used 48,000 DLHs to produce 128,000 units. It incurred the following manufacturing costs:
Actual cost incurred:
Direct material (380,000 lbs) $779,000
Direct labor (63,000 hrs) $507,150
Variable overhead $220,000
Fixed overhead $365,000
a. Determine all variances for direct materials, direct labor, and factory overhead. Label your calculated variances clearly.
b. Show your work and explain terms and process.
c. Display your work in “variance models” similar to those used in class.
d. Prepare “Direct Cost Variances” on one worksheet in your workbook.
e. Prepare “Indirect Cost Variances” on a second worksheet in your workbook
Explanation / Answer
1
Calculation of Direct material Price variance :
Formula :
Direct material Price variance = (Actual Price - Standard Price) * Actual Quantity
Actual Price = $779000 / 380,000 lbs =
$ 2.05
Standard Price =
$ 2.00
Actual Quantity
380000
Direct material Price variance = (2.05-2) * 380000 =
$ 19,000
Unfavorable
2
Calculation of Direct material Quantity variance :
Formula :
Direct material Quantity variance = (Actual Quantity - Standard Quantity) * Standard Price
Actual Quantity
380000
Standard Quantity = 128000 Units * 3lbs =
384000
Standard Price =
$ 2.00
Direct material Quantity variance = (380000-384000)*2
$ 8,000
Favorable
3
Calculation of Direct Labor Rate variance :
Formula :
Direct Labor rate variance = (Actual rate - Standard rate) * Actual hours
Actual Rate = $507150 / 63000 hours =
$ 8.05
Standard Rate =
$ 8.00
Actual Hours
63000
Direct Labor Rate variance = (8.05-8) * 63000 =
$ 3,150
Unfavorable
4
Calculation of Direct labor Efficiency variance :
Formula :
Direct labor Efficiency variance = (Actual Hours - Standard Hours) * Standard Rate
Actual Hours
63000
Standard hours = 128000 Units * 0.5 hours =
64000
Standard Rate =
$ 8.00
Direct labor Efficiency variance = (63000-64000)*8
$ 8,000
Favorable
1
Calculation of Direct material Price variance :
Formula :
Direct material Price variance = (Actual Price - Standard Price) * Actual Quantity
Actual Price = $779000 / 380,000 lbs =
$ 2.05
Standard Price =
$ 2.00
Actual Quantity
380000
Direct material Price variance = (2.05-2) * 380000 =
$ 19,000
Unfavorable
2
Calculation of Direct material Quantity variance :
Formula :
Direct material Quantity variance = (Actual Quantity - Standard Quantity) * Standard Price
Actual Quantity
380000
Standard Quantity = 128000 Units * 3lbs =
384000
Standard Price =
$ 2.00
Direct material Quantity variance = (380000-384000)*2
$ 8,000
Favorable
3
Calculation of Direct Labor Rate variance :
Formula :
Direct Labor rate variance = (Actual rate - Standard rate) * Actual hours
Actual Rate = $507150 / 63000 hours =
$ 8.05
Standard Rate =
$ 8.00
Actual Hours
63000
Direct Labor Rate variance = (8.05-8) * 63000 =
$ 3,150
Unfavorable
4
Calculation of Direct labor Efficiency variance :
Formula :
Direct labor Efficiency variance = (Actual Hours - Standard Hours) * Standard Rate
Actual Hours
63000
Standard hours = 128000 Units * 0.5 hours =
64000
Standard Rate =
$ 8.00
Direct labor Efficiency variance = (63000-64000)*8
$ 8,000
Favorable
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