Costello Corporation manufactures a single product. The standard cost per unit o
ID: 2423001 • Letter: C
Question
Costello Corporation manufactures a single product. The standard cost per unit of product is shown below. Direct materials -2 pound plastic at $6.16 per pound $ 12.32 Direct labor-1.50 hours at $11.00 per hour 16.50 Variable manufacturing overhead 11.25 Fixed manufacturing overhead 6.75 Total standard cost per unit $46.82 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 8,100 direct labor hours (5,400 units) for the month. The master budget showed total variable costs of $60,750 ($7.50 per hour) and total fixed overhead costs of $36,450 ($4.50 per hour). Actual costs for October in producing 4,800 units were as follows. Direct materials (9,750 pounds) $ 61,913 Direct labor (7,060 hours) 79,919 Variable overhead 61,776 Fixed overhead 26,564 Total manufacturing costs $230,172 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 Favorable Overhead volume variance $ 1 UnfavorableExplanation / Answer
Actual over head for (both Fixed and Variable)=$61,776+$26,564=$88,340
Budgeted Allowance Based on Standard Hours Allowed=7,200*$7.5+8,100*$4.5=$90,450
Overhead Controllable variance=Actual Factory Overhead - Budgeted Allowance Based on Standard Hours Allowed
=$88,340-$90,450=$2,110-Favorable
Controllable variance = Budgeted Allowance Based on Standard Hours Allowed - Overhead charged to production
=$90,450-7200*$12=-$4,050-Unfavorable