Trico Company set the following standard unit costs for its single product. Dire

Question

Trico Company set the following standard unit costs for its single product. Direct materials (26 lbs.@$5 per lb.) Direct labor (10 hrs. @ $10 per hr.) Factory overhead-variable (10 hrs.@ $6 per hr.) Factory overhead-fixed (10 hrs.@ $9 per hr.) $130.00 100.00 60.00 90.00 Total standard cost $380.00 The predetermined overhead rate is based on a planned operating volume of 70% of the productive capacity of 80,000 units per quarter. The following flexible budget information is available Operating Levels 60% 48,000 480,000 70% 56,000 560,000 80% Production in units Standard direct labor hours Budgeted overhead 64,000 640,000 Fixed factory overhead Variable $5.040,000 $5.040,000 $5.040,000 $2,880,000 $3,360,000 $3.840,000 factory overhead During the current quarter, the company operated at 80% of capacity and produced 64,000 units of product actual direct labor totaled 633,000 hours. Units produced were assigned the following standard costs: Direct materials (1,664,000 lbs.@ $5 per lb.) Direct labor (640,000 hrs. @ $10 per hr.) Factory overhead (640,000 hrs. $15 per hr) $8.320,000 6,400,000 9,600,000 Total stanclard cost $24,320,000 Actual costs incurred during the current quarter follow: $ 8.460,900 Direct materials (1,659,000 lbs.@ $5.10 per lb.) Direct labor (633,000 hrs.@ $9.75 per hr.) Fixed factory overhead costs 6,171,750 5,613,396 5,255,094 Variable factory overhead costs Total actual costs $ 25,501140

Explanation / Answer

1. direct material price variance = (actual price - standard price ) * actual quantity

= (5.10 - 5 ) * 1659000

= 165900 (adverse)

direct material quantity variance = (actual quantity - standard quantity ) * standard price

=(1659000 - 1664000) * 5

=25000 Favouable

direct material cost variance = direct material at standard cost - direct material at actual cost

=8320000 - 8460900

=(140900)

2. direct labour rate variance = (actual rate - standard rate ) * actual hours

=( 9.75 -10) *633000

=158250 Favouable

direct labour efficiency variance = (actual hours - standard hours ) * standard rate

=(633000 - 640000) *10

=70000 Fav.

direct labour variance = direct labour at standard cost - direct labour at actual cost

= 6400000 - 6171750

= 228250 Fav.

3.overhead controllable variance

actual overhead = 10868490

budgeted overhead

fixed expense budgeted= 5040000

variable expense = standard hrs allowed * variable overhead rate

=64000*10 * 6 3840000

overhead controllable variance 1988490 (adverse)

4. overhead volume variance

budgeted fixed overhead = 56000* 90 = 5040000

fixed overhead cost applied = 64000 * 90 = 5760000

overhead vol variance = 720000 (fav.)

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