And 26,400 hrs were worked. Overhead for the year amounted $132K COMPANY Amount
ID: 2343751 • Letter: A
Question
And 26,400 hrs were worked. Overhead for the year amounted $132K
COMPANY
Amount of direct material per candle (pounds)
1.6
Price of direct material per pound
$ 0.60
Quantity of labor per unit (hours)
1
Price of direct labor per hour
$ 8.00
Total budgeted fixed overhead
$ 156,000
Expected quantity to be produced
30,000
Actual quantity produced
24,000
Actual direct materials used (pounds)
40,000
Actual price of direct material per pound
$ 0.54
Actual direct labor cost per hour
$ 7.50
Actual labor hours worked
26,400
Actual overhead
$ 132,000
COMPANY
Amount of direct material per candle (pounds)
1.6
Price of direct material per pound
$ 0.60
Quantity of labor per unit (hours)
1
Price of direct labor per hour
$ 8.00
Total budgeted fixed overhead
$ 156,000
Expected quantity to be produced
30,000
Actual quantity produced
24,000
Actual direct materials used (pounds)
40,000
Actual price of direct material per pound
$ 0.54
Actual direct labor cost per hour
$ 7.50
Actual labor hours worked
26,400
Actual overhead
$ 132,000
Explanation / Answer
1. standard cost
a. direct material 1.6 * 0.60 = 0.96
b. labor 8.00 * 1 = 8.00
c. overhead 156,000/30,000 = 5.20
2. total standard cost per unit = 0.96 + 8.00 + 5.20 = 14.16
3. actual cost
a. direct material (40,000/24,000)*0.54 = 0.90
b. labor (26,400/24,000)*7.50 = 8.25
c. overhead 132,000/24,000 = 5.50
4. total actual cost per unit = 0.90 + 8.25 + 5.50 = 14.65
5. price and usage variance
a. direct material
1. price variance = 40,000*(0.60(standard) - 0.54(actual)) = 2,400 (favorable). It is favorable because the actual material price is lower than the budgeted material price. The actual price is lower probably because it is low qulity material.
2. usage variance = 0.60*(1.6*24,000(standard)-40,000(actual)) = 960 (unfavorable) It is unfavorable because we used more material than we budgeted. We used more material than expected because material was low quality.
b. labor
1. price variance = 26,400*(8.00(standard) - 7.50(actual)) = 13,200 (favorable). It is favorable because the actual hourly wage is lower than that of standard. The actual hourly wage is lower because workers are not well-trained.
2. usage variance = 8.00*(24,000*1(standard) - 26,400(actual)) = 19,200 (unfavorable). It is unfavorable because we used more labor than expected. Since workers are less skilled, they couldn't produce candles as efficiently as expected.
6. fixed cost
a. spending variance 156,000(budgeted) - 132,000(actual) = 24,000 (favorable) It is favorable because the actual overhead was less than the budgeted. This means that the budget procedure either missed or failed to predict changes in certain fixed costs.
b. volume variance 156,000(budgeted) - 24,000*(156,000/30,000)(actual quantity*budgeted overhead per unit) = 31,200 (unfavorable). This is unfavorable because capacity is not fully utilized. If the company made as many units in the period as they budgeted, there should be no fixed overhead volume variance. The volume variance reflects the company's use of its capacity. When volume is low, the price per unit of fixed overhead is higher and capacity is underutilized. The variance can occur when demand for a product changes from what was expected, or from changes in strategy or unexpected breakdowns.
7.The individual variances are large because they are the total amounts in the period. On the other hand, per unit difference is small because it is per unit.