Question

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

Direct materials (30 Ibs. @ $5.00 per Ib.)	$	150.00
Direct labor (7 hrs. @ $14 per hr.)		98.00
Factory overhead—variable (7 hrs. @ $7 per hr.)		49.00
Factory overhead—fixed (7 hrs. @ $9 per hr.)		63.00
Total standard cost	$	360.00

The predetermined overhead rate is based on a planned operating volume of 80% of the productive capacity of 61,000 units per quarter. The following flexible budget information is available.

	Operating Levels
		70%		80%		90%
Production in units		42,700		48,800		54,900
Standard direct labor hours		298,900		341,600		384,300
Budgeted overhead
Fixed factory overhead	$	3,074,400	$	3,074,400	$	3,074,400
Variable factory overhead	$	2,092,300	$	2,391,200	$	2,690,100

During the current quarter, the company operated at 90% of capacity and produced 54,900 units of product; actual direct labor totaled 316,300 hours. Units produced were assigned the following standard costs.

Direct materials (1,647,000 Ibs. @ $5.00 per Ib.)	$	8,235,000
Direct labor (384,300 hrs. @ $14 per hr.)		5,380,200
Factory overhead (384,300 hrs. @ $16 per hr.)		6,148,800
Total standard cost	$	19,764,000

Actual costs incurred during the current quarter follow.

Direct materials (1,364,000 Ibs. @ $7.80 per lb.)	$	10,639,200
Direct labor (316,300 hrs. @ $11.10 per hr.)		3,510,930
Fixed factory overhead costs		2,348,400
Variable factory overhead costs		2,742,200
Total actual costs	$	19,240,730

Problem 23-4A Computation of materials, labor, and overhead variances LO P2, P3

Required:
1. Compute the direct materials cost variance, including its price and quantity variances.
2. Compute the direct labor cost variance, including its rate and efficiency variances.
3. Compute the overhead controllable and volume variances.

Answer 1

Standard DATA for		54900	units
	Quantity (SQ)	Rate (SR)	Standard Cost
	[A]	[B]	[A x B]
Direct Material	( 30lbs x 54900 units)=1647000lbs	$          5.00	$ 8,235,000.00
Direct labor	( 7hr x 54900 units)=384300hr	$        14.00	$ 5,380,200.00
Variable Overhead	( 7hr x 54900 units)=384300hr	$          7.00	$ 2,690,100.00

Actual DATA for		54900	units
	Quantity (AQ)	Rate (AR)	Actual Cost
Direct Material	1364000	$                7.80	$ 10,639,200.00
Direct labor	316300	$              11.10	$     3,510,930.00
Variable Overhead	316300	$                8.67	$     2,742,200.00

	Hrs	Rate	Amount
Budgeted Fixed Overhead	341600	$                9.00	$     3,074,400.00
Standard Fixed Overhead or Fixed Overhead absorbed	384300	$                9.00	$     3,458,700.00
Actual Fixed Overhead incurred	316300	$                7.43	$     2,348,700.00

1.

Material Cost Variance
(	Standard Cost	-	Actual Cost	)
(	$       8,235,000.00	-	$    10,639,200.00	)
	-2404200
	Variance		$      2,404,200.00			Unfavourable-U

Material Price Variance
(	Standard Rate	-	Actual Rate	)	x	Actual Quantity
(	$                        5.00	-	$                       7.80	)	x	1364000
	-3819200
	Variance		$      3,819,200.00			Unfavourable-U
Material Quantity Variance
(	Standard Quantity	-	Actual Quantity	)	x	Standard Rate
(	1647000	-	1364000	)	x	$                           5.00
	1415000
	Variance		$      1,415,000.00			Favourable-F

2.

Labor Cost Variance
(	Standard Cost	-	Actual Cost	)
(	$       5,380,200.00	-	$      3,510,930.00	)
	1869270
	Variance		$      1,869,270.00			Favourable-F

Labor Rate Variance
(	Standard Rate	-	Actual Rate	)	x	Actual Labor Hours
(	$                     14.00	-	$                    11.10	)	x	316300
	917270
	Variance		$          917,270.00			Favourable-F
Labour Efficiency Variance
(	Standard Hours	-	Actual Hours	)	x	Standard Rate
(	384300	-	316300	)	x	$                        14.00
	952000
	Variance		$          952,000.00			Favourable-F

3.

Variable Overhead Rate Variance
(	Standard Rate	-	Actual Rate	)	x	Actual Labor Hours
(	$                        7.00	-	$                       8.67	)	x	316300
	-528100
	Variance		$          528,100.00			Unfavourable-U
Variable Overhead Efficiency Variance
(	Standard Hours	-	Actual Hours	)	x	Standard Rate
(	384300	-	316300	)	x	$                           7.00
	476000
	Variance		$          476,000.00			Favourable-F
Variable Overhead Spending Variance
(	Standard Cost	-	Actual Cost	)
(	$       2,690,100.00	-	$      2,742,200.00	)
	-52100
	Variance		$            52,100.00			Unfavourable-U
Fixed Overhead Variance
(	Standard Fixed Overhead or Fixed Overhead absorbed	-	Actual Fixed Overhead incurred	)
(	$       3,458,700.00	-	$      2,348,700.00	)
	1110000
	Variance		$      1,110,000.00			Favourable-F
Fixed Overhead Production Volume Variance
(	Standard Fixed Overhead or Fixed Overhead absorbed	-	Budgeted Fixed Overhead	)
(	$       3,458,700.00	-	$      3,074,400.00	)
	384300
	Variance		384300			Favourable-F
Fixed Overhead Production Budget Variance
(	Budgeted Fixed Overhead	-	Actual Fixed Overhead incurred	)
(	$       3,074,400.00	-	$      2,348,700.00	)
	725700
	Variance		725700			Favourable-F

Note no.	Explanation
1	Standard data is calculated by considering budgeted data and using actual data.
2	Variance refers to the difference between Standard cost and Actual cost.
3	If Actual cost is MORE than Standard Cost, the Variance is said to be UNFAVOURABLE.
4	If Actual cost is LESS than Standard Cost, the Variance is said to be FAVOURABLE.