XO-20 is an oil-based product used to remove rust on bolts and nuts that are stu
ID: 2473423 • Letter: X
Question
XO-20 is an oil-based product used to remove rust on bolts and nuts that are stuck. Its accounting system uses standard costs. The standards per 0.5-liter can of solution call for 0.62 liters of material and 4 hours of labor. (0.62 liters of material are needed due to evaporation in the production process.) The standard cost per liter of material is $2.5. The standard cost per hour for labor is $14.00. Overhead is applied at the rate of $15.12 per can. Expected production is 7,700 cans with fixed overhead per year of $33,264 and variable overhead of $10.80 per unit (a 0.5-liter can).
During 2015, 7,670 cans were produced; 13,200 liters of material were purchased at a cost of $58,608; 10,020 liters of material were used in production. The cost of direct labor incurred in 2015 was $411,587, based on an average actual wage rate of $12.07 per hour. Actual overhead for 2015 was $126,000.
XO-20 is an oil-based product used to remove rust on bolts and nuts that are stuck. Its accounting system uses standard costs. The standards per 0.5-liter can of solution call for 0.62 liters of material and 4 hours of labor. (0.62 liters of material are needed due to evaporation in the production process.) The standard cost per liter of material is $2.5. The standard cost per hour for labor is $14.00. Overhead is applied at the rate of $15.12 per can. Expected production is 7,700 cans with fixed overhead per year of $33,264 and variable overhead of $10.80 per unit (a 0.5-liter can).
During 2015, 7,670 cans were produced; 13,200 liters of material were purchased at a cost of $58,608; 10,020 liters of material were used in production. The cost of direct labor incurred in 2015 was $411,587, based on an average actual wage rate of $12.07 per hour. Actual overhead for 2015 was $126,000.
Explanation / Answer
Standard cost per unit = Direct Material + Direct Labour + Overheads = (.62*$2.5) + (4*$14) + $15.12
= 1.55 + 56 + 15.12 = $17.23
Material Price Variance = (Actual Price - Standard Price) * Actual Quantity
=($58608/13200 - $2.50) * 13200 = 25608 (Unfavorable)
Material Quantity Variance = (Actual usage in units - Standard usage in units) x Standard cost per unit
= (13200 - 7670*.62) * 2.5 = 21111.50 (Unfavorable)
Labour Rate Variance = (Actual rate - Standard rate) x Actual hours worked
= (411587/34100 - 14) * 411587/12.07 = 65813 (Favorable)
Labour Efficiency Variance = (Actual Hours - Standard Hours) * Standard Rate
= (411587/12.07 - 7670*4) * 14 = (34100 - 30680) * 14 = 47880 (Unfavorable)
Controllable Overhead Variance = Actual overhead expense - (budgeted overhead per unit x standard number of units)
= $126000 - (15.12 * 7700) = 126000 - 116424 = 9576 (Favorable)
Overhead Volume Variance = (Actual quantity - Budgeted quantity) x Budgeted rate
= (7670 - 7700) * $15.12 = 453.60 (Unfavorable)
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