Costello Corporation manufactures a single product. The standard cost per unit o
ID: 2451601 • Letter: C
Question
Costello Corporation manufactures a single product. The standard cost per unit of product is shown below.
The predetermined manufacturing overhead rate is $14 per direct labor hour ($21.00 ÷ 1.50). It was computed from a master manufacturing overhead budget based on normal production of 8,400 direct labor hours (5,600 units) for the month. The master budget showed total variable costs of $50,400 ($6.00 per hour) and total fixed overhead costs of $67,200 ($8.00 per hour). Actual costs for October in producing 4,200 units were as follows.
The purchasing department buys the quantities of raw materials that are expected to be used in production each month. Raw materials inventories, therefore, can be ignored.
(a) Compute all of the materials and labor variances. (Round answers to 0 decimal places, e.g. 125.)
(b) Compute the total overhead variance.
Explanation / Answer
a) Actual material price = 64165 /8510 =$ 7.54 per pound
Material price variance = Actual quantity (AP -SP)
= 8510 ( 7.54 - 7.32)
= 8510 * .22
= 1872.20 (U)
Material quantity variance = SP (AQ -SQ)
= 7.32 [ 8510 - ( 2* 4200 ) ]
= 7.32 [ 8510 - 8400]
= 7.32 * 110
= 805.2(U)
Total material variance = price + quantity vatiance
= 1872.2 +805.2
= 2677.4 (U)
Actual Rate = 74847/6100 = $ 12.27 per hour
Labor price variance = AH(AR -SR)
= 6100 ( 12.27 - 12)
= 6100 * .27
= 1647(U)
Labor efficiency / Quantity variance = SR (AH- SH)
= 12 [6100 - (4200*1.50 ) ]
= 12 [6100 - 6300 ]
= 12 * - 200
= - 2400 (F)
Total labor variance = 1647 (U) + ( -2400 F)
= -753 F
b) Total overhead variance = Actual overhead - Standard overhead variance
= (64560+25870) - [(4200*1.50*6)+ 67200 ]
= 90430 - [37800 + 67200]
= 90430 - 105000
= -14570 (F)