PROBLEM 1 The standard specifications for an electric motor manufactured by AAA

Question

PROBLEM 1

The standard specifications for an electric motor manufactured by AAA Electric Co. follow:

Standard cost per unit:

Materials (2 lb * $5 per lb)..................$10

Labor (4hr * $12 per hr).......................$48

Factory overhead ( 4hr * $ 3.38 per hr).... $13.52

Total Standard Cost............................$71.52

*$1.00 variable + $2.38 fixed= $3.38

Factory overhead rates are based on a normal 70% capacity and use the following flexible budget:

Normal

70% 85% 100%

Motors to be produced ................2100 2550 3000

Variable overhead.......................$8,400 $10,200 $12,000

Fixed overhead...........................$20,000 $20,000 $20,000

The actual production was 2,500 motors, and factory overhead costs totaled $29,750.

CALCULATE THE FACTORY OVERHEAD VARIANCES USING THE TWO- VARIANCE METHOD

Explanation / Answer

Solution.

Controllable Variance Actual FOH Cost        29,750.00 Estimated FOH Cost at St. Rate Fixed Cost        23,800.00 Variable Cost        10,000.00     (33,800.00) Fav        (4,050.00) Volume Variance Estimated FOH Cost at St. Rate        33,800.00 FOH Charged to Production        32,000.00 UnFav          1,800.00

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