Question

83. On July 1, Ossege Company began to manufacture a new product. The company uses a standard cost system to account for manufacturing costs. The standard costs per unit for the new product are as follows: Raw materials 10 gallons @ $2.00 per gallon $20 Direct labor .5 hours @ $16 per hour Factory overhead $8 per direct labor hour ($8 x.5) $32 8 In addition, the following data came from Ossege's books for the month of July: Actual number of units produced Actual number of units sold 5,200 4,500 Debit Credit $225,000 $109,000 1,000 4,000 Sales Purchases (55,000 gallons) Materials price variance Materials quantity variance Labor rate variance Labor efficiency variance Factory overhead net variance 2,650 800 1,200 There were no beginning or ending balances in Materials. Compute each of the following items for Ossege for the month of July: 1) Standard quantity of raw materials allowed for actual production. 2) Actual quantity of raw materials used. 3) Standard direct labor hours allowed. 4) Actual direct labor hours worked. 5) Actual direct labor rate. 6) Actual total overhead.

Answer 1

1)	standard qty of raw material allowed for actual production:
	= standard qty for one unit * actual units produced
	= 10 gallons per unit*5200
	=52000 gallons
2)	Actual qty of raw material used
	Material efficiency variance = standard price per gallon * (standard qty allowed for actual production - actual qty used)
	4000 (U) =$2 per gallon * (52000 gallons- actual qty used)
	4000 (U) = $104000- (actual qty used *2)
	Actual qty used = 54000 gallons
3)	Standard labor hours allowed
	= standrad hours per unit * actual units produced
	=0.5 hour *5200 units
	=2600 hours
4)	Material efficiency variance = standard rate per hour * (standard labor hours allowed for actual production - actual labor hours used)
	800 (U) = $16* ( 2600 hours - actual hours used)
	800 (U) = $41600- (actual hours used *$16)
	Actual hours used = 2650 hours
5)	Actual direct labor rate
	labor rate variance = actual hours used * (standard rate per hour - actual rate per hour )
	2650 (U) = 2650 hours * ($16 per hour - actual rate per hour )
	-2650 = $42400 - ( actaul rate per hour * 2650)
	Actual rate per hour = $17 per hour
6)	Actual total overhead
	= Standard overhead cost + overhead net variance
	= ($8 per hour *2600 hours ) +1200
	=$20800+1200
	=$22000
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