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

4. Compute the direct labor cost variance, including its rate and efficiency variances. AH = Actual Hours SH = Standard Hours AR = Actual Rate SR = Standard Rate Actual Cost Standard Cost 0 $

Answer 1

4
Actual Cost								Standard Cost
AH	x	AR		AH	x	SR		SH	x	SR
20,000	x	10.20		20,000	x	10.00		28,500	x	10.00
	204000				200000				285000
			4000				85000
Direct labor rate variance				4000	Unfavorable
Direct labor efficiency variance				85000	Favorable
Total direct labor variance				81000	Favorable