Question

Question 9

Sheridan Corporation manufactures a single product. The standard cost per unit of product is shown below.

Direct materials—1 pound plastic at $7.00 per pound		$ 7.00
Direct labor—1.5 hours at $11.10 per hour		16.65
Variable manufacturing overhead		9.00
Fixed manufacturing overhead		9.00
Total standard cost per unit		$41.65

The predetermined manufacturing overhead rate is $12.00 per direct labor hour ($18.00 ÷ 1.5). It was computed from a master manufacturing overhead budget based on normal production of 9,000 direct labor hours (6,000 units) for the month. The master budget showed total variable costs of $54,000 ($6.00 per hour) and total fixed overhead costs of $54,000 ($6.00 per hour). Actual costs for October in producing 3,500 units were as follows.

Direct materials (3,660 pounds)		$ 25,986
Direct labor (5,140 hours)		59,110
Variable overhead		44,098
Fixed overhead		21,202
Total manufacturing costs		$150,396

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		$		Neither favorable nor unfavorableFavorableUnfavorable
Materials price variance		$		UnfavorableNeither favorable nor unfavorableFavorable
Materials quantity variance		$		Neither favorable nor unfavorableFavorableUnfavorable
Total labor variance		$		UnfavorableNeither favorable nor unfavorableFavorable
Labor price variance		$		FavorableNeither favorable nor unfavorableUnfavorable
Labor quantity variance		$		FavorableUnfavorableNeither favorable nor unfavorable

(b)

Compute the total overhead variance.

Total overhead variance

$

Neither favorable nor unfavorableUnfavorableFavorable

Answer 1

Solution a:

Direct Material Cost Variance
Actual Cost					Standard cost for actual quantity					Standard Cost
AQ *	AP =				AQ *	SP =				SQ *	SP =
3660	$7.10	$25,986.00			3660	$7.00	$25,620.00			3500	$7.00	$24,500.00
			$366.00	Unfavorable				$1,120.00	Unfavorable
			Direct Material Price Variance					Direct Material Qty variance
Direct material price variance					$366.00	Unfavorable
Direct material quantity variance					$1,120.00	Unfavorable
Total direct material variance					$1,486.00	Unfavorable

Direct Labor Cost Variance
Actual Cost					Standard cost for actual quantity					Standard Cost
AH *	AR =				AH *	SR =				SH *	SR =
5140	$11.50	$59,110.00			5140	$11.10	$57,054.00			5250	$11.10	$58,275.00
			$2,056.00	Unfavorable				$1,221.00	Favorable
			Direct Labor rate Variance					Direct Labor Efficiency Variance
Direct Labor Rate variance					$2,056.00	Unfavorable
Direct Labor Efficiency variance					$1,221.00	Favorable
Total direct labor variance					$835.00	Unfavorable

Solution b:

Total overhead variance = Total overhead applied - Actual overhead

= (3500*1.5*$12) - ($44,098 + $21,202)

= $63,000 - $65,300 = $2,300 U