5. The following standard costs were developed for one of the products of Xero C

Question

5. The following standard costs were developed for one of the products of Xero Company STANDARD COST CARD PER UNIT Materials: 2 lbs. x $13 per lb Direct labor: 4 hours x $10 per hour Variable overhead: 4 hours x $8 per hour Fixed overhead: 4 hours x $12 per hour S 26.00 40.00 32.00 48.00 $146.00 Total standard cost per unit period The following information is available regarding the company's operations for the Units produced: Materials purchased and used Direct labor: 9,000 19,000 37,000 Ibs. @ $14 per pound hours costing $351,500 Manufacturing overhead incurred: Variable Fixed $277,500 $480,000 Budgeted fixed manufacturing overhead for the period is $480,000, and the standard fixed overhead rate is based on expected capacity of 40,000 direct labor hours. The normal capacity is 10,000 units. Required a. Calculate the direct materials price variance. b. Calculate the direct materials quantity variance c. Calculate the direct labor rate variance. d. Calculate the direct labor efficiency (time) variance e. Calculate the overhead volume variance

Explanation / Answer

Answer a. Direct Material Price Variance = (SR - AR ) X AQ Direct Material Price Variance = ($13 - $14) X 19,000 lbs Direct Material Price Variance = $19,000 (U) Answer b. Direct Material Quantity Variance = (SQ - AQ ) X SR Direct Material Quantity Variance = (18,000 lbs - 19,000 lbs) X $13 Direct Material Quantity Variance = $13,000 (U) Answer c. Direct Labor Rate Variance = (SR - AR) X AH Direct Labor Rate Variance = ($10 - $9.50) X 37,000 hrs Direct Labor Rate Variance = $18,500 (F) Answer d. Direct Labor Efficiency Variance = (SH - AH ) X SR Direct Labor Efficiency Variance = (36,000 hrs - 37,000 hrs) X $10 Direct Labor Efficiency Variance = $10,000 (U) Answer e. Budgeted Allowance based on standard hours Allowed: Fixed Cost -                480,000.00 Variable Cost - 36,000 Hrs X $7.50                270,000.00                750,000.00 Overhead Charged to Production - 36,000 Hrs X ($7.50 + $12)                702,000.00 Overhead Volume Variance                  48,000.00 (U) Variable Overhead Rate = $277,500 / 37,000 Hrs = $7.50 per DLH Fixed Overhead Rate = $480,000 / 40,000 Hrs = $12 per hr

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