PROBLEM 10A-11 Comprehensive Standard Cost Variances L010-1, LO10-2, LO10-3, LO1

ID: 2549008 • Letter: P

Question

PROBLEM 10A-11 Comprehensive Standard Cost Variances L010-1, LO10-2, LO10-3, LO10-4 Flandro Company uses a standard cost system and sets predetermined overhead rates on the basis of direct labor-hours. The following data are taken from the company's budget for the current year: Denominator activity (direct labor-hours). . . . Variable manufacturing overhead cost . $25,000 Fixed manufacturing overhead cost . . .$59,000 5,000 The standard cost card for the company's only product is given below: $13.20 12.00 Direct materials, 3 yards at $4.40 per yard . .. Direct labor, 1 hour at $12 per hour .. . Manufacturing overhead, 140% of direct labor cost . . . . . . . . 16.80 Standard cost per unit . . $42.00

Explanation / Answer

Standard Cost Card.

Standard Unit

Standard Cost /Unit ($)

Total Standard Cost (4)

Variable Cost

Direct Material

3 yards

4.40

13.20

Directed labor

1 hour

Variable Over head

41.67%Direct Labor Cost

Total Variable Cost (A)

30.2

Fixed overhead (B)

98.33% of Direct Labor Cost

11.8

Total (A+B)

Note:

Computation of standard variable overhead cost.

Variable overhead per hour= Total variable overhead/ labor hours= $25,000/5000 =$5

Converting the same to percentage of labor cost per hour= 12/5*100= 41.67%

Computation of standard fixed overhead cost

Fixed overhead per hour= Total Fixed overhead/ labor hours= $59,000/5000 =$11.8

Converting the same to percentage of labor cost per hour= 12/11.8*100= 98.33%

2. Direct Material Variance.

Direct Material Variance = (Actual quantity*actual price- Standard quatity to produce actual output *Standard price)

(18,500*$4.80-18,000*$4.40)= ($88,800-$79,200) = $9,600

Material Quantity Variance.

(Actual Quantity –Standard Quantity for actual production)* Standard Price.

(18,500-18,000)*4.40= $2,200 unfavorable Variance.

Material price Variance

(Actual price –Standard price) *Actual Quantity

($4.80-$4.40)*18,500= $7,400 Unfavorable variance

Material purchase variance.

(Actual price –Standard price) *Actual Quantity purchased

($4.80 –$4.40) *24,000= $96,00 Unfavorable

Direct Labor Variance

Direct Labor Variance.

(Actual rate*actual hours- Standard Rate*Standard Hours to produce actual output)

($13*5,800 - $12*6,000) = ($75,400- $72,000)= $34,00 unfavorable

Labor Rate Variance

(Actual rate-Standard Rate)*Actual hours

(13-12)*5,800= $5,800 unfavorable

Direct Labor Efficiency Variance

(Actual hours-Standard Hours for actual output)*Standard Cost

(5,800-6,000)$12= $2,400 favorable

3. Variable overhead Variance.

Variable overhead spending Variance

(Actual total variable overhead incurred- Budgeted variable overhead to be applied on input actually used)

($29,580-$31,419)= $18,39 Favorable

Budgeted Variable overhead based on input actually used= Actual laboru cost* overhead rate= $75,400*41.67%=31419

Variable overhead efficiency variance

(Budgeted Variable overhead based on input actually used-standard variable overhead allowed for production)

Standard Labor cost* Variable overhead rate

($31,419-$29,002) = $2,417 unfavorable

Budgeted Variable overhead based on input actually used= Actual labor cost* overhead rate= $75,400*41.67%=$31,419

Standard Labor cost for actual production* Variable overhead rate

(5800*$12)*41.67%

Fixed overhead Spending Variance

(Actual fixed over head- budget fixed overhead)=

($60,400-$74140) $13,740 unfavorable.

Fixed overhead volume variance

(Budget fixed Overhead-Fixed overhead applied) = ($59,000 -$74,140) =$ 15,140 unfavorable

Fixed overhead applied= Actual Labor cost *Fixed overhead Rate

=$75,400*98.33%= $74,140

4. as most of the cost include variable items the chance in volume must not affect the variance because the total standard variable cost will charge accordance with the actual unit produced volume variance is not controllable because effected with price fluctuations.