Question

Vaughn 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		11.25
Fixed manufacturing overhead		6.75
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 8,850 direct labor hours (5,900 units) for the month. The master budget showed total variable costs of $66,375 ($7.50 per hour) and total fixed overhead costs of $39,825 ($4.50 per hour). Actual costs for October in producing 4,700 units were as follows.

Direct materials (4,890 pounds)		$ 35,208
Direct labor (6,900 hours)		78,660
Variable overhead		62,602
Fixed overhead		24,098
Total manufacturing costs		$200,568

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 unfavorableUnfavorableFavorable
Materials price variance		$		Neither favorable nor unfavorableUnfavorableFavorable
Materials quantity variance		$		Neither favorable nor unfavorableUnfavorableFavorable
Total labor variance		$		Neither favorable nor unfavorableUnfavorableFavorable
Labor price variance		$		UnfavorableNeither favorable nor unfavorableFavorable
Labor quantity variance		$		Neither favorable nor unfavorableFavorableUnfavorable

(b)

Compute the total overhead variance.

Total overhead variance

$

FavorableNeither favorable nor unfavorableUnfavorable

Answer 1

solution a:

Direct Material Cost Variance
Actual Cost					Standard cost for actual quantity					Standard Cost
AQ *	AP =				AQ *	SP =				SQ *	SP =
4890	$7.20	$35,208.00			4890	$7.00	$34,230.00			4700	$7.00	$32,900.00
			$978.00	Unfavorable				$1,330.00	Unfavorable
			Direct Material Price Variance					Direct Material Qty variance
Direct material price variance					$978.00	Unfavorable
Direct material quantity variance					$1,330.00	Unfavorable
Total direct material variance					$2,308.00	Unfavorable

Direct Labor Cost Variance
Actual Cost					Standard cost for actual quantity					Standard Cost
AH *	AR =				AH *	SR =				SH *	SR =
6900	$11.40	$78,660.00			6900	$11.10	$76,590.00			7050	$11.10	$78,255.00
			$2,070.00	Unfavorable				$1,665.00	Favorable
			Direct Labor rate Variance					Direct Labor Efficiency Variance
Direct Labor Rate variance					$2,070.00	Unfavorable
Direct Labor Efficiency variance					$1,665.00	Favorable
Total direct labor variance					$405.00	Unfavorable

solution b:

Total overhead variance = Overhead applied - Actual overhead

= (4700*1.5*$12) - ($62,602 + $24,098)

= $84,600 - $86,700 = $2,100 Unfavorable