Problem 23-3A Flexible budget preparation; computation of materials, labor, and

Question

Problem 23-3A Flexible budget preparation; computation of materials, labor, and overhead variances; and overhead variance report LO P1, P2, P3, C2

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Antuan Company set the following standard costs for one unit of its product.

The predetermined overhead rate ($18.50 per direct labor hour) is based on an expected volume of 75% of the factory’s capacity of 20,000 units per month. Following are the company’s budgeted overhead costs per month at the 75% capacity level.

The company incurred the following actual costs when it operated at 75% of capacity in October.

Problem 23-3A Part 4

4. Compute the direct labor cost variance, including its rate and efficiency variances.

Direct materials (6 Ibs. @ $5 per Ib.) $ 30 Direct labor (2 hrs. @ $17 per hr.) 34 Overhead (2 hrs. @ $18.50 per hr.) 37 Total standard cost $ 101

Explanation / Answer

Actual output:(20000*75%): 15000 units Std labour hour per unit of output: 2 hours Std labour hours for actual output 30,000 hours Std rate per hour: 17/hr Actual hours used: 30500 hours Actual rate per hour 17.25/hr Labour cost variance = Std hours*Std rate - Actual hours *Actual rate (30000 hours*17) - (30500 hours*17.25) = $ 16,125 U Labour rate variance = Actual labour hours (Std rate - actual rate) 30500 hours (17.00-17.25) = $ 7625 U labour Efficiency variance= Std rate (Sstd hours-Actual hours) 17.00 (30000 -30500 hours) = $ 8500 U

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