1) Palek Company has adopted the following standards: Input Total Direct materia
ID: 2515596 • Letter: 1
Question
1) Palek Company has adopted the following standards:
Input
Total
Direct materials
3 lbs. @ $3.60 per lb.
$10.80
Direct labor
5 hrs. @ $12.00 per hr.
60.00
Factory overhead:
Variable
$4.00 per direct labor hour
20.00
Fixed
$5.00 per direct labor hour
25.00
45.00
Standard cost per unit
$115.50
Palek's January budget was based on normal volume of 40,000 standard labor hours. During January, Palek produced 7,900 units with records indicating the following data:
Direct materials purchased
25,000
lbs. @ $3.65
Direct materials used
23,400
lbs.
Direct labor
39,900
hrs. @ $11.85
Factory overhead
$375,000
Fixed factory overhead
$210,000
Assuming Palek uses the four-variance method of analyzing factory overhead, compute the following variances for the month of January and indicate whether each is favorable or unfavorable:
a.
Variable overhead spending variance
b.
Variable overhead efficiency variance
c.
Fixed overhead spending variance
d.
Fixed overhead production-volume variance
Input
Total
Direct materials
3 lbs. @ $3.60 per lb.
$10.80
Direct labor
5 hrs. @ $12.00 per hr.
60.00
Factory overhead:
Variable
$4.00 per direct labor hour
20.00
Fixed
$5.00 per direct labor hour
25.00
45.00
Standard cost per unit
$115.50
Explanation / Answer
a)Variable overhead spending variance = Actual variable overhead - [AH*SR]
=[375000-210000]-[39900*4]
= 165000- 159600
= 5400 U
B)Variable overhead efficiency variance =SR[AH-SH]
4[39900- (7900*5)]
4[39000- 39500]
- 2000 F [Enter as 2000F]
C)Fixed overhead spending variance =Actual -budgeted
= 210000- 200,000
= 10000 u
**Budgeted =normal direct labor hours*Standard fixed overhead rate
= 40000*5
= 200000
d)Fixed overhead production-volume variance = SR [Budgeted gours-standard hours]
= 5[40000-(7900*5)]
= 5 [40000- 39500]
= 2500U
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