Question

Antuan Company set the following standard costs for one unit of its product.

Direct materials (5.0 Ibs. @ $5.00 per Ib.)	$	25.00
Direct labor (1.9 hrs. @ $10.00 per hr.)		19.00
Overhead (1.9 hrs. @ $18.50 per hr.)		35.15
Total standard cost	$	79.15

The predetermined overhead rate ($18.50 per direct labor hour) is based on an expected volume of 75% of the factory’s capacity of 20,000 units per month. Following are the company’s budgeted overhead costs per month at the 75% capacity level.

Overhead Budget (75% Capacity)
Variable overhead costs
Indirect materials	$	15,000
Indirect labor		75,000
Power		15,000
Repairs and maintenance		30,000
Total variable overhead costs				$	135,000
Fixed overhead costs
Depreciation—Building		23,000
Depreciation—Machinery		70,000
Taxes and insurance		16,000
Supervision		283,250
Total fixed overhead costs					392,250
Total overhead costs				$	527,250

The company incurred the following actual costs when it operated at 75% of capacity in October.

Direct materials (75,500 Ibs. @ $5.10 per lb.)				$	385,050
Direct labor (20,000 hrs. @ $10.20 per hr.)					204,000
Overhead costs
Indirect materials	$	41,550
Indirect labor		176,250
Power		17,250
Repairs and maintenance		34,500
Depreciation—Building		23,000
Depreciation—Machinery		94,500
Taxes and insurance		14,400
Supervision		283,250			684,700
Total costs				$	1,273,750

3. Compute the direct materials cost variance, including its price and quantity variances. AQ = Actual Quantity SQ = Standard Quantity AP = Actual Price SP = Standard Price Actual Cost Standard Cost $ 0 0 $ 0

Answer 1

(A)

Material price variance = actual quantity x (standard price - actual price)

= 75500 x ($5 - $5.10)

= $7550 Unfavorable

(B)

Material quantity variance = standard price x (standard quantity - actual quantity)

= $5 x (75000 - 75500)

= $2500 Unfavorable

Where,

Standard quantity = actual output x standard quantity per unit of output

= (20000 x 75%) x 5 = 75000 lbs

(C)

Total direct material variance = (standard quantity x standard price) - (actual quantity x actual price)

= (75000 x $5) - (75500 x $5.10)

= $375000 - $385050

= $10050 Unfavorable