Hayes Chemical Company produces a chemical used in dry cleaning. Its accounting

Question

Hayes Chemical Company produces a chemical used in dry cleaning. Its accounting system uses standard costs. The standards per half gallon can of chemical call for .75 gallons of material and 3.0 hours of labor. (.75 gallons of material are needed to produce a.5 gallon can of product due to evaporation.) The standard cost per gallon of material is $5.25. The standard cost per hour of labor is $11.00. Overhead is applied at the rate of $9.75 per can. Expected production is 17,000 cans with fixed overhead per year of $29,750, and variable overhead of $8.00 per unit (a half gallon can). During 2016 18,000 cans were produced; 16,000 gallons of material were purchased at a cost of $109,600; 14,400 gallons of material were used in production. The cost of direct labor incurred in 2016 was $608,220 based on an average actual wage rate of $10.90 per hour. Actual overhead for 2016 was $175,600 (actual variable costs are $145,600 and actual fixed costs are $30,000). Required a. Determine the standard cost per unit. b. Calculate material, labor, one way variance, variable overhead variance, and fixed overhead variance. List a possible cause for each variance. c.

Explanation / Answer

1 Actual rate 6.85 Per gallon (109600/16000) Direct material price variance = (Actual rate - Standard rate) * Actual quantity Direct material price variance = (6.85-5.25) * 14400 Direct material price variance = 23040 Unfavorable 2 Standard Material for actual production 18000*.75 13,500 Pounds Direct material quantity variance=   ( Actual material - Standard material for acual production) *Standard rate Direct material quantity variance=   (14400-13500)* 5.25 4725 UnFavorable 3 Actual rate 10.90 per hour Labor rate variance = (Standard rate - Actual rate) * Actual hours Labor rate variance = (11 - 10.90) * 55800 5580 Favorable 4 Standard labor hours for actual production 18000*3 54,000 Hours Labor Effeciency variance= (Actual hours - Standard hours for acual production) *Standard rate Labor Effeciency variance= (55800-54000)* 11 19800 UnFavorable Actual cost 145600 Standard cost 144000 (18000*8) Variable overhead variance 1600 Unfavorable Actual fixed cost 30000 Standard fixed cost 29750 Fixed overhead variance 250 Unfavorable Standard cost per unit Direct material 3.9375 (.75*5.25) Direct labor 33 (3*11) Variable overheads 8 Fixed cost 1.75 (29750/17000) Standard cost per unit 46.6875

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