Costello Corporation manufactures a single product. The standard cost per unit o
ID: 2422922 • Letter: C
Question
Costello Corporation manufactures a single product. The standard cost per unit of product is shown below. Direct materials—3 pound plastic at $7.18 per pound $ 21.54 Direct labor—1.50 hours at $11.00 per hour 16.50 Variable manufacturing overhead 9.75 Fixed manufacturing overhead 14.25 Total standard cost per unit $62.04 The predetermined manufacturing overhead rate is $16 per direct labor hour ($24.00 ÷ 1.50). It was computed from a master manufacturing overhead budget based on normal production of 8,550 direct labor hours (5,700 units) for the month. The master budget showed total variable costs of $55,575 ($6.50 per hour) and total fixed overhead costs of $81,225 ($9.50 per hour). Actual costs for October in producing 4,400 units were as follows. Direct materials (13,320 pounds) $ 98,701 Direct labor (6,490 hours) 72,818 Variable overhead 76,030 Fixed overhead 31,870 Total manufacturing costs $279,419 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.
Explanation / Answer
Actual over head for (both Fixed and Variable)=$76,030+$31,870=$107,900
Budgeted Allowance Based on Standard Hours Allowed=6,490*$6.5+8,850*$9.5=$123,410
Overhead Controllable variance=Actual Factory Overhead - Budgeted Allowance Based on Standard Hours Allowed
=$107,900-$123,410=$15,510-Favorable
Controllable variance = Budgeted Allowance Based on Standard Hours Allowed - Overhead charged to production
=$123,410-6,490*$24=-$32,350-Unfavorable