ABC Company produces widgets. ABC Company reports the following information on t
ID: 2405431 • Letter: A
Question
ABC Company produces widgets. ABC Company reports the following information on the production of 1 widget:
STANDARD
Direct materials:
Purchase price: $2.50 per pound
Discount: $0.25 per pound
Shipping: $0.30 per pound
Pounds need per widget: 12 pounds
Waste per widget: .5 pounds
Spoilage per widget: .25 pounds
Direct Labor:
Hourly pay rate: $25 per hour
Payroll taxes & benefits: $7 per hour
Time to produce 1 widget: 10 hours
Setup time 1.5 hours
Downtime/cleanup .5 hours
Overhead:
Budgeted Variable overhead: $550,000
Budgeted Fixed overhead: $400,000
Budgeted direct labor hours: 120,000 hours (cost driver for overhead)
Production (in units): 10,000 units
ACTUAL:
Direct materials used: 130,000 pounds
Direct materials cost: $2.10 per pound
Direct labor hours: 140,000 hours
Direct labor cost: $34 per hour
Overhead: $870,000
Actual production: 10,000 units
A. Calculate the standard cost per widget using the standard information above,
B. Calculate the materials variance (price, quantity and total)
C. Calculate labor variance (price, quantity and total)
D. Calculate Overhead variance using the actual information above compared to the standard costs.
Explanation / Answer
A)
**Overhead rate per hour = [550000+400000]/120000=7.91667 per hour
2)Material price variance = AQ[AR-SR]
=130000[2.1 - 2.55]
= -58500 F
Material quantity variance =SR[AQ-SQ]
= 2.55[ 130000-(10000*12.75)]
= 2.55 [130000-127500]
= 6375 U
Total material variance = price variance + quantity variance
= -58500 +6375
= - 52125 F
3)Labor rate variance = AH[AR-SR]
= 140000 [ 34- 32]
= 280000 U
Labor efficiency variance = SR [AH-SH]
= 32[140000-( 10000*12)]]
= 32 [140000-120000]
= 640000 U
Total variance= 280000+640000 = 920000 U
D)Overhead variance = Actual overhead -standard overhead
= 870000 - [10000 actual units * 95 standard cost per widget]
= 870000 - 950000
= - 80000 F
standard Quantity standard rate Cost per widget [SQ*SR] Direct material 12+.5+.25=12.75 2.50-.25+.30=2.55 32.5125 Direct Labor 10+1.5+.5=12 25+7= 32 384 overhead 12 7.91667 95 standard cost per widget 511.5125