Rogen Corporation manufactures a single product. The standard cost per unit of p

Question

Rogen Corporation manufactures a single product. The standard cost per unit of product is shown below.

The predetermined manufacturing overhead rate is $12 per direct labor hour ($18.00 ÷ 1.50). It was computed from a master manufacturing overhead budget based on normal production of 9,000 direct labor hours (6,000 units) for the month. The master budget showed total variable costs of $54,000 ($6.00 per hour) and total fixed overhead costs of $54,000 ($6.00 per hour). Actual costs for October in producing 3,500 units were as follows.

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 ignored.

Compute all of the materials and labor variances. (Round answers to 0 decimal places, e.g. 125.)

(b)

Compute the total overhead variance.

Direct materials—1 pound plastic at $7 per pound $ 7.00 Direct labor—1.50 hours at $11.10 per hour 16.65 Variable manufacturing overhead 9.00 Fixed manufacturing overhead 9.00 Total standard cost per unit $41.65

Explanation / Answer

a.

Material variances:

Material price variance = Actual quantity * (Standard rate – Actual rate)

Actual rate = $25,986 / 3,660 = $7.1

Material price variance = 3,600 * ($7 - $7.1) = 3,600 * $0.1 = $360 Adverse

Material usage variance = Standard rate * (Standard quantity for actual output

Standard quantity for actual output = (output for 1 pound is 1 unit so input for 3,500 units of output is 3,500 pounds.)

Material usage variance = $7 (3,500 – 3,660) = $7 * (-160) = $1,120 Adverse.

Total material variance = material price variance + Material usage variance

                                     = $360 + $1,120 = $1,480 Adverse

Labor variances:

Labor rate variance = Actual labor hours worked * (standard rate – Actual rate)

Actual rate = 59,110 / 5,140 = $11.5

                             

Labor rate variance = 5,140 * ($11.1 - $11.5)

                                           = $2,056 Unfavorable

Labor usage variance = standard rate * (standard hours worked for actual output – Actual hours worked)

Standard hours for actual output = 9,000 / 6,000 = 1.5 hours for 1 unit and for 3,500 units 3,500 * 1.5 = 5,250 hours

Labor usage variance = $11.1 * (5,250 – 5,140) = $1,221 favorable

Labor variance = labor rate variance + labor usage variance

                         = -2,056 + 1,221                         

                         = $835 Unfavorable

b.

Overhead variances

Fixed overhead variance:

Fixed overhead absorption rate = budgeted fixed overhead / budgeted ouput

                                                      = $54,000 / 9,000

                                                      = $6 per hour

Fixed overhead variance = Actual fixed overhead – absorbed fixed overhead

                                        = 21,202 – ($6*3,500)

                                            = $21,202 - $21,000 = 202 favorable

Variable overhead variance:

Variable overhead expenditure variance = overhead recovered - actual variable overhead

Overhead recovered = actual production * standard rate per hour

                                        = 3,500*1.5 * 9 = 47,250

Variable overhead expenditure variance = $47,250 - $44,098= $3,152 favorable

Variable overhead efficiency variance = standard variable overhead rate * (standard output – actual output)

Standard output = 5,140 / 1.5 = 3,427

Variable overhead efficiency variance = $9 * (3,427 – 3,500) = 657 Unfavorable

Overhead variance = $3,152 + (-657) = $2,495 Favorable

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