Costello Corporation manufactures a single product. The standard cost per unit o
ID: 2469708 • 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 $10 per direct labor hour ($5.00 ÷ 0.50). It was computed from a master manufacturing overhead budget based on normal production of 2,600 direct labor hours (5,200 units) for the month. The master budget showed total variable costs of $16,900 ($6.50 per hour) and total fixed overhead costs of $9,100 ($3.50 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.
1. Compute all of the materials and labor variances. (Round answers to 0 decimal places, e.g. 125.)
2. Compute the total overhead variance.
Explanation / Answer
1.
Total Material Variance
Material cost per standard cost for 4,200 units should be 4,200 * $ 13.68 = $57,456
Actual Direct Materials Cost incurred is $ 59,555.
Actual cost is more than Standard cost. So it is Unfavorable.
Hence Total Material Variance = $59,555 - $57,456 = $2,099 Unfavorable
Materials Price Variance = Actual Quantity * (Actual Price – Standard Price)
Here, Actual Quantity is 4,200
Actual Price is $59,555/8,520 = $6.99 per pound (Rounded off to 2 decimals). Per unit = $6.99 * 2 = $13.98
Standard Price = $13.68
Hence Materials Price Variance = 4,200 * ($13.98 - $13.68) = $1,260 Unfavorable
Materials Quantity Variance = Standard Price * (Actual Quantity – Standard Quantity)
Here, Standard Price = $13.68
Actual Quantity = 4,200
Standard Quantity = 8,520/2 = 4,260 (2 pounds per unit)
Hence Materials Quantity Variance = $13.68 * (4,200 -4,260) = $821 Unfavorable
Total Labor Variance
Direct Labor cost per standard cost for 4,200 units should be 4,200 * $ 6.00 = $25,200
Actual Direct Labor Cost incurred is $ 24,255
Actual cost is less than Standard cost. So it is favorable.
Hence Total Labor Variance = $25,200 - $24,255 = $945 favorable
Labor Price Variance = Actual Quantity * (Actual Price – Standard Price)
Here, Actual Quantity is 4,200
Actual Price is $24,255/1,980 = $12.25 per hour. Per unit = $12.25 * 0.50 = $6.125
Standard Price = $6.00
Hence Labor Price Variance = 4,200 * ($6.125 - $6.00) = $525 Unfavorable
Labor Quantity Variance = Standard Price * (Actual Quantity – Standard Quantity)
Here, Standard Price = $6.00
Actual Quantity = 4,200
Standard Quantity = 1,980/0.50 = 3,960 (0.50 hrs per unit)
Hence Labor Quantity Variance = $6.00 * (4,200 – 3,960) = $1,440 favorable
2. Total Overhead Variance
Variable Manufacturing Overhead Per Standard cost for 4,200 units should be 4,200 * $3.25 = $13,650
Fixed Manufacturing overhead per standard cost for 4,200 units should be 4,200 * $1.75 = $7,350
Total Overhead per standard cost for 4,200 units should be $13,650 + $7,350 = $21,000
Actual overhead costs incurred = $16,021 + $7,229 = $23,250
Actual costs are more than standard costs. So it is unfavorable.
Hence Total Overhead Variance = $23,250 - $21,000 = $2,250 Unfavorable