Question

Problem 1 Abuba Manufacturing manufactures widgets for distribution. The standard costs for the manufacture of widgets follow: Standard Costs Actual Costs Direct materials 3 lbs. per widget at 31,000 lbs. at $34 $35 per pound per pound Direct labor 2.5 hours per widget at $11 per hour 22,500 hours at $11.80 per hour Factory overhead Variable cost, $24/widget Fixed cost, $40/widget $241,500 variable cost $381,250 fixed cost Budgeted factory overhead was $640,000. Overhead applied is based on widgets produced. The company estimated that 10,000 widgets would be produced; however, only 9,600 were produced. Instructions Calculate the following amounts. 1. Rate at which total factory overhead is applied 2. Materials price variance 3. Total materials variance 4. Overhead volume variance 5. Overhead controllable variance

Answer 1

1

Rate at which Total factory overhead applied

=Budgeted factory overhead / Estimated widget produced

=6400000/10000

=$64 per widget

2

Material Price variance

Actual Qty of material used * (Standard Rate-Actual Cost)

=31000*(35-34)

=31000 Favorable

3

Total Material variance

Standard QTY * Standard rate - Actual Qty * Actual Rate

=9600*3*35 - 31000*34

=46000 unfavorable

4

Overhead Volume variance = Budgeted fixed overhead - Absorbed fixed overhead

=400000-40*9600

=16000 unfavorable

5

Overhead Controllable variance

Actual Factory Overhead - Budgeted Allowance Based on Standard Hours Allowed

Budgeted Allowance Based on Standard Hours Allowed=640000/(10000*2.5)=$25.60 per hr

=(241500+381250) -(22500*25.60)

=46750 favorable