*Problem 23-1A (part level submission) Costello Corporation manufactures a singl
ID: 2479892 • Letter: #
Question
*Problem 23-1A (part level submission) Costello Corporation manufactures a single product. The standard cost per unit of product is shown below Direct materials-2 pound plastic at $6.50 per pound Direct labor-1.50 hours at $11.00 per hour Variable manufacturing overhead Fixed manufacturing overhead Total standard cost per unit 13.00 16.50 9.00 6.00 $44.50 The predetermined manufacturing overhead rate is $10 per direct labor hour ($15.00 ÷ 1.50). It was computed from a master manufacturing overhead budget based on normal production of 8,100 direct labor hours (5,400 units) for the month. The master budget showed total variable costs of $48,600 ($6.00 per hour) and total fixed overhead costs of $32,400 ($4.00 per hour). Actual costs for October in producing 3,400 units were as followss Direct materials (6,950 pounds) Direct labor (4,900 hours) Variable overhead Fixed overhead $ 46,704 55,370 38,350 14,690 $155,114 Total manufacturing costs The purchasing department buys the quantities of raw materials that are expected to be used in production each month. Raw materials inventories, therefore, can be ignoredExplanation / Answer
Total Material Variance = Material Price Variance + Material Quantity Variance
= 1529 + 975 = 2504 (Unfavourable)
Material Price Variance = Actual Quantity * (Actual Price - Standard Price)
= 6950 * (46704 / 6950 - 6.50) = 1529 (Unfavourable)
Material Quantity Variance = (Actual usage in units - Standard usage in units) x Standard cost per unit
= (6950 - 3400*2) * 6.50 = 975 (Unfavourable)
Total Labour Variance = Labour Rate Variance + Labor Efficiency Variance
= -1470 + 2000 = 530 (Favourable)
Labour Rate Variance = Actual Hours * (Actual Price - Standard Price)
= 4900 * (55370 / 4900 - 11) = 1470 (Unfavourable)
Labor Efficiency Variance = (Actual hours - Standard hours) x Standard rate
= (4900 - 3400*1.50) * 11 = 2200 (Favourable)
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