Costello Corporation manufactures a single product. The standard cost per unit o

Question

Costello Corporation manufactures a single product. The standard cost per unit of product is shown below.

3.50

The predetermined manufacturing overhead rate is $14 per direct labor hour ($7.00 ÷ 0.50). It was computed from a master manufacturing overhead budget based on normal production of 2,500 direct labor hours (5,000 units) for the month. The master budget showed total variable costs of $17,500 ($7.00 per hour) and total fixed overhead costs of $17,500 ($7.00 per hour). Actual costs for October in producing 4,500 units were as follows.

Total manufacturing costs

$125,526

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.

Direct materials—2 pound plastic at $7.10 per pound $ 14.20 Direct labor—0.50 hours at $12.00 per hour 6.00 Variable manufacturing overhead 3.50 Fixed manufacturing overhead

3.50

Explanation / Answer

flexible flexible actual variance units 5000 4500 4500 variable direct material 71000 63900 65975 -2075 U direct labor 30000 27000 26101 899 F variable manufacturing overhead 17500 15750 23531 -7781 U fixed fixed manufacturing overhead 17500 17500 9919 7581 F 136000 124150 125526 -1376 volume variance = (136000-124150) 11850 F cotrollable variance = -1376 (U)

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