Slick Corporation is a small producer of synthetic motor oil. During May, the co

Question

Slick Corporation is a small producer of synthetic motor oil. During May, the company produced 5,000 cases of lubricant. Each case contains twelve quarts of synthetic oil. To achieve this level of production, Slick purchased and used 16,500 gallons of direct materials at a cost of $21,165. It also incurred average direct labor costs of $15 per hour for the 4,279 hours worked in May by its production personnel. Manufacturing overhead for the month totaled $9,426, of which $2,200 was considered fixed. Slick's standard cost information for each case of synthetic motor oil is as follows:

Direct materials standard price $ 1.30 per gallon Standard quantity allowed per case 3.25 gallons Direct labor standard rate $ 16 per hour Standard hours allowed per case 0.75 direct labor hours Fixed overhead budgeted $ 2,600 per month Normal level of production 5,200 cases per month Variable overhead application rate $ 1.50 per case Fixed overhead application rate ($2,600

Explanation / Answer

C. Compute the manufacturing overhead spending and volume variances.

Overhead Spending Variance = (2600 + 1.50*5000) - 9426

Overhead Spending Variance = 674 (Favorable)

Overhead Volume Variance = (5000*0.50-2600)

Overhead Volume Variance = 100 (Unfavorable)

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