Trico Company set the following standard unit costs for its The following inform

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Trico Company set the following standard unit costs for its

The following information applies to the questions displayed below. Trico Company set the following standard unit costs for its single product. Direct materials (25 lbs.@ $4 per lb.) Direct labor (8 hrs. $8 per hr.) Factory overhead-variable (8 hrs. $5 per hr.) Factory overhead-fixed (8 hrs. $7 per hr.) 100.00 64.00 40.00 56.00 Total standard cost $260.00 The predetermined overhead rate is based on a planned operating volume of 50% of the productive capacity of 80,000 units per quarter. The following flexible budget information is available Actual costs incurred during the current quarter follow: Direct materials (1,195,000 lbs.@ $4.10 per lb.) $ 4,899,500 Direct labor (377,000 hrs. $7.75 per hr.) Fixed factory overhead costs Variable factory overhead costs Total actual costs 2,921,750 3,343,208 3,129,811 $ 14,294,269 Operating Levels Production in units Standard direct labor hours Budgeted overhead 40% 32,000 256,000 50% 40,000 320,000 60% 48,000 384,000 Fixed factory overhead Variable factory overhead $2,240,000 2,240,00O 2,240,000 $1,280,000 $1,600,00O S1,920,000 During the current quarter, the company operated at 60% of capacity and produced 48,000 units of product; actual direct labor totaled 377,000 hours. Units produced were assigned the following standard costs Direct materials (1,200,000 lbs. $4 per lb.) Direct labor (384,000 hrs. $8 per hr.) Factory overhead (384,000 hrs.@ $12 per hr.) S 4,800,000 3.072,000 4,608,000 Total standard cost $ 12,480,000

Explanation / Answer

1) Diract material cost variance Quantity Price Cost Standard cost per unit 25 lbs 4 per lbs 100 Standard cost of producing 48000 units 1200000 4 4800000 Actual cost 1195000 4.1 4899500 a) total material cost variance It measures overall change in total cost of production = Actual cost - standard cost of actual output = 4899500 - 4800000 =99500 Un Favourable b) Material Price Variance It measures change in total cost on account of change in material price = Actual Quantity ( Actual price - standard price) = 1195000 ( 4.10 - 4) = 119500 Unfavourable c) Material quantity variance It measures change in total cost on account of change in material used in production = Standard price ( Actual Quantity - standard quantity) = 4 ( 1195000-1200000) = 20000 Favourable

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