Costello Corporation manufactures a single product. The standard cost per unit o
ID: 2422924 • 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 $7.12 per pound $ 21.36 Direct labor—1.50 hours at $12.00 per hour 18.00 Variable manufacturing overhead 11.25 Fixed manufacturing overhead 6.75 Total standard cost per unit $57.36 The predetermined manufacturing overhead rate is $12 per direct labor hour ($18.00 ÷ 1.50). It was computed from a master manufacturing overhead budget based on normal production of 7,950 direct labor hours (5,300 units) for the month. The master budget showed total variable costs of $59,625 ($7.50 per hour) and total fixed overhead costs of $35,775 ($4.50 per hour). Actual costs for October in producing 4,900 units were as follows. Direct materials (14,820 pounds) $ 109,816 Direct labor (7,190 hours) 88,653 Variable overhead 66,503 Fixed overhead 23,747 Total manufacturing costs $288,719 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. Compute the overhead controllable variance and the overhead volume variance. Overhead controllable variance $ Entry field with incorrect answer Entry field with correct answer UnfavorableNeither favorable nor unfavorableFavorable Overhead volume variance $ Entry field with incorrect answer Entry field with correct answer UnfavorableFavorableNeither favorable nor unfavorable
Explanation / Answer
CALCULATION OF OVERHEAD CONTROLLABLE VARIANCE:
Actual Fixed Overhead (Variable 66503+Fixed 23747) $ 90,250.00
Budgeted based on standard hours alloed :
Fixed expenses budgeted =
(Normal capacity in labour hours 7,950 x Fixed Overhead rate $6.75) 53662.50
Variable Expenses =
(units produced 4900 x Standard hours per unit 1.5 x Variable overhead rate 11.25)= 82,687.75 136,350.25
Overhead Controllable Variance (Favourable ) 46,100.25
= (Actual quantity x FOAR) - (Budgeted Quantity x FOAR)
Absorbsed fixed overhead =(4900 x 6.75) = 33075
Note: Fixed overhead absorbtion rate = Budgeted fixed overhaed / Budgeted output = 35775/5300 = $ 6.75