A company has developed the following standard cost data based on a denominator
ID: 2467368 • 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. Prepare “Direct Cost Variances” on one worksheet in your workbook.
b. Prepare “Indirect Cost Variances” on a second worksheet in your workbook.
Explanation / Answer
Answer:a
Direct materials:
Actual units @ actual price
= 380,000 kg * $2.05
= $779,000
Actual units @ standard price
= 380,000 kg * $2
= 760,000
Price variance—unfavourable
= 380,000 kg * $0.05
= $ 19,000
Standard units @ standard price
= 384,000 kg *$2
= $768,000
Actual units @ standard price
= 380,000 kg *$2
= 760,000
Quantity variance—favourable
= 4,000 kg ´ $2
= $ 8,000
Direct labour:
Actual hours @ actual rate
= 63,000 hr. * $8.05
= $507,150
Actual hours @ standard rate
= 63,000 hr. * $8
= 504,000
Price variance—unfavourable
= 63,000 hr. * $0.05
= $ 3,150
Standard hours @ standard rate
= 64,000 hr. * $8
= $512,000
Actual hours @ standard rate
= 63,000 hr. * $8
= 504,000
Quantity variance—favourable
= 1,000 hr. * $8
= $ 8,000
Answer:b
Overhead:
Budgeted overhead at production level achieved:
Fixed overhead
$360,000
Variable overhead [($180000/75%) ´ 80%]
192000
$552,000
Standard overhead charged to production:
(64000 hr. ´ $9)
576,000
Volume variance—favourable
$ 24,000
Actual overhead incurred
$585000
Budgeted overhead at production level achieved:
Fixed overhead
$360,000
Variable overhead
192,000
552,000
Controllable variance—unfavourable
$ 33000
Actual units @ actual price
= 380,000 kg * $2.05
= $779,000
Actual units @ standard price
= 380,000 kg * $2
= 760,000
Price variance—unfavourable
= 380,000 kg * $0.05
= $ 19,000
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