Question

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

Direct materials (29 lbs.@$4 per lb.) Direct labor (8 hrs. $8 per hr.) Factory overhead-variable (8 hrs. @ $5 per hr) Factory overhead-fixed (8 hrs. $7 per hr) 116.00 64.00 40.00 56.00 Total standard cost $276.00 The predetermined overhead rate is based on a planned operating volume of 80% of the productive capacity of 50,000 units per quarter. The following flexible budget information is available Operating Levels 70% 35,000 280,000 90% Production in units Standard direct labor hours Budgeted overhead 80% 40,000 320,000 45,000 360,000 Fixed factory overhead Variable factory overhead $2,240,000 $2,240,000 $2,240,000 1,400,000 $1,600,000 1,800,000 During the current quarter, the company operated at 90% of capacity and produced 45,000 units of product actual direct labor totaled 358,000 hours. Units produced were assigned the following standard costs Direct materials (1,305,000 lbs. $4 per lb.) Direct labor (360,000 hrs.@ $8 per hr.) Factory overhead (360,000 hrs. $12 per hr.) 5,220,000 2,880,000 4,320,000 Total standard cost $12,420,000 Actual costs incurred during the current quarter follow: Direct materials (1,300,000 lbs. $4.10 per lb.) Direct labor (358,000 hrs. @ $775 per hr.) Fixed factory overhead costs Variable factory overhead costs $ 5,330,000 2,774,500 3,174,717 2,972,075 Total actual costs $ 14,251,292

Answer 1

1. Compuation of Direct Material Price , Quantity and Total Variance
Actual Cost								Standard Cost
AQ	x	AP		AQ	x	SP		SQ	x	SP
13,00,000	x	$4.10		13,00,000	x	$4		13,05,000	x	$4
	5330000				5200000				5220000
			130000				-20000
Material Price Variance ( SP-AP) AQ				-130000	Unfavorable
Material Quantity Variance (SQ-AQ)SP				20000	Favorable
Total Material Variance				-110000	Unfavorable

2. Compuation of Direct Labour   Rate , Efficiency and Total Variance
Actual Cost								Standard Cost
AH	x	AR		AH	x	SR		SH	x	SR
3,58,000	x	7.75		3,58,000	x	8		3,60,000	x	8
	2774500				2864000				2880000
			-89500				-16000
Labour Rate Variance ( SR-AR) AH				89500	Favourable
Labour Efficiency Variance (SH-AH)SR				16000	Favorable
Total Labour Variance				105500	Favourable

3. Compute the Overhead Controllable and Volume Variance
Controllable Variance
Actual Overhead (3174717+2972075)		6146792
Budgeted Overhead (2240000+1800000)		4040000
Controllable Overhead		10186792	Un Favourable
Fixed Overhead Volume Variance
Budgeted Fixed Overhead		2240000
Fixed Overhead Cost Applied (358000*7)		2506000
Fixed Overhead Volume Variance		-266000	Favourable