Costello Corporation manufactures a single product. The standard cost per unit o
ID: 2457466 • Letter: C
Question
Costello Corporation manufactures a single product. The standard cost per unit of product is shown below.
Direct materials—1 pound plastic at $7.00 per pound $ 7.00 Direct labor—1.60 hours at $12.00 per hour 19.20 Variable manufacturing overhead 12.00 Fixed manufacturing overhead 4.00 Total standard cost per unit $42.20
The predetermined manufacturing overhead rate is $10 per direct labor hour ($16.00 ÷ 1.60). It was computed from a master manufacturing overhead budget based on normal production of 8,000 direct labor hours (5,000 units) for the month. The master budget showed total variable costs of $60,000 ($7.50 per hour) and total fixed overhead costs of $20,000 ($2.50 per hour). Actual costs for October in producing 4,900 units were as follows.
Direct materials (5,100 pounds) $ 36,720 Direct labor (7,500 hours) 93,750 Variable overhead 59,700 Fixed overhead 21,000 Total manufacturing costs $211,170
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.)
Total materials variance $ =
Materials price variance $=
Materials quantity variance $ =
Total labor variance $=
Labor price variance $=
Labor quantity variance $=
(b) Compute the total overhead variance. Total overhead variance $=
Explanation / Answer
Answer:
Actual Cost for producing 4,900 Units during the month
(a) Calculation of Variances
Material Price Variance = Actual Quantity (Standard Price - Actual Price) = 5,100 ($7 - $7.20) = $1,020 Unfavorable
Material Quantity Variance = Standard Price (Standard Quantity for actual production - Actual Quantity) = $7 (4,900 - 5,100) = $1,400 Unfavorable
Standard Quantity for actual production = Actual Production x Standard Quantity requried per Unit = 4,900 Units x 1 Pound = 4,900 Pounds
Material Cost Variance = (Standard Cost for Actual Output - Actual Cost) = (4,900 x $7) - (5,100 x $7.20) = $34,300 - $36,720 = $2,420 Unfavorable
or
Material Cost Variance = Material Price Variance + Material Quantity Variance = $1,020 UF + $1,400 UF = $2,420 Unfavorable
Labour Price Variance = Actual Hour (Standard Rate Per Hour - Actual Rate Per Hour) = 7,500 ($12 - $12.50) = $3,750 Unfavorable
Labour Quantity/Efficiency Variance = Standard Rate per hour (Standard Hours used for actual production - Actual Hours) = $12 (7,840 - 7,500) = $4,080 Favorable
Standard Hours used for actual production = Standard Hour Per Unit x Actual Production = 1.60 Hours x 4,900 Units = 7,840 Hours
Total Labour Variance = Labour Price Variance + Labour Efficiency Variance = $3,750 UF + $4,080 F = $330 Favorable
(b) Calculation of Total Overhead Variance
Total Actual Overhead = Variable Overhead + Fixed Overhead = $59,700 + $21,000 = $80,700
Total Standard Overhead = Standard manufacturing overhead rate per hour x Standard Direct Labour Hours = $10 x 8,000 = $80,000
Total Overhead Variance = Budgeted Total Overhead - Actual Total Overhead = $80,000 - $80,700 = $700 Unfavorable
Standard Cost Per Unit Items Quantity Rate Amount Direct Material 1 Pound $7 $7.00 Direct Labour 1.60 Hours $12 $19.20 Variable MF Overhead 1.60 Hours $7.50 $12.00 Fixed MF Overhead $4.00 Total Standard Cost Per Unit $42.20