Rogen Corporation manufactures a single product. The standard
cost per unit of product is shown below.
Direct materials—1 pound plastic at $6.00 per pound | $ 6.00 | |
Direct labor—2.0 hours at $11.85 per hour | 23.70 | |
Variable manufacturing overhead | 12.00 | |
Fixed manufacturing overhead | 12.00 | |
Total standard cost per unit | $53.70 |
The predetermined manufacturing overhead rate is $12.00 per direct
labor hour ($24.00 ÷ 2.0). It was computed from a master
manufacturing overhead budget based on normal production of 11,800
direct labor hours (5,900 units) for the month. The master budget
showed total variable costs of $70,800 ($6.00 per hour) and total
fixed overhead costs of $70,800 ($6.00 per hour). Actual costs for
October in producing 3,700 units were as follows.
Direct materials (3,890 pounds) | $ 23,729 | |
Direct labor (7,300 hours) | 87,965 | |
Variable overhead | 63,934 | |
Fixed overhead | 26,966 | |
Total manufacturing costs | $202,594 |
The purchasing department buys the quantities of raw materials that
are expected to be used in production each month. Raw materials
inventories, therefore, can be ignored.
(a)
Compute all of the materials and labor variances.
Total materials variance | $ |
UnfavorableFavorableNeither favorable nor unfavorable |
||
Materials price variance | $ |
Neither favorable nor unfavorableFavorableUnfavorable |
||
Materials quantity variance | $ |
UnfavorableFavorableNeither favorable nor unfavorable |
||
Total labor variance | $ |
Neither favorable nor unfavorableFavorableUnfavorable |
||
Labor price variance | $ |
FavorableNeither favorable nor unfavorableUnfavorable |
||
Labor quantity variance | $ |
FavorableUnfavorableNeither favorable nor unfavorable |
(b)
Compute the total overhead variance.
Total overhead variance | $ |
UnfavorableFavorableNeither favorable nor unfavorable |
Total Material Variance = Standard cost - Actual Cost |
(6X3700)-23729=$1529 UF |
calculation of direct material price variance: |
= (Standard price per unit of material - Actual price per unit of material) × Actual quantity |
= ($6/Pound - $6.10/Pound ) × 3890 Pound = $389 U F |
Calculation of direct material quantity variance |
=(standard quantity of material required for actual production - actual quantity used) × Standard price per unit |
((3700-3890 Pound )X $6 = $1140 UF |
* Actual Price/ Pound= 23729/3890=$6.10 |
Total Labour Variance= Stdandard Cost- Actual Cost |
(23.70X 3700)-87965=$275 UF |
Calculation of direct labor rate variance |
= (Standard direct labor rate per hour - actual direct labor rate per hour) × Actual hours used |
= ($11.85/hour - $12.05/hour) × 7300 Hours= $1460 UF |
* Actual Hourly Rate:=$87965/7300=$12.05/Hour |
Calculation of direct labor efficiency variance: |
= (standard hours required for actual production - actual hours used) × standard overhead recovery rate |
= (2 Hour × 3700 Unit - 7300) × $11.85 = $1185 F |
Total Overhead Variance= Applied Overhead- Actual Overhead |
($12X (2 HourX 3700 Unit)- (63934+26966) |
(88800-90900)= $2100 UF |
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