Costello Corporation manufactures a single product. The standard cost per unit o
ID: 2476080 • 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 $16 per direct labor hour ($24.00 ÷ 1.50). It was computed from a master manufacturing overhead budget based on normal production of 8,250 direct labor hours (5,500 units) for the month. The master budget showed total variable costs of $45,375 ($5.50 per hour) and total fixed overhead costs of $86,625 ($10.50 per hour). Actual costs for October in producing 4,700 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.
Compute all of the materials and labor variances.
Direct materials—1 pound plastic at $6.11 per pound $ 6.11 Direct labor—1.50 hours at $12.00 per hour 18.00 Variable manufacturing overhead 8.25 Fixed manufacturing overhead 15.75 Total standard cost per unit $48.11Explanation / Answer
Material:
SQSP AQSP AQAP
=4,700 x 6.11 = 4,850 x 6.11 $30,749
=$28,717 =$29,633.5
SP= Standard Price of Material = $6.11
SQ= Standard Qty required for actual Production= 1 x 4,700=4,700
AQ= Actual Qty used= $4,850
Total materials variance= SQSP- AQAP=$28,717-$30,749=$2,032 U
Materials price variance= AQSP-AQAP=$29,633.5 -$30,749=$1,115.5
Materials quantity variance=SQSP-AQSP= $28,717-$29,633.5=$916.5 U
Labor:
SRSH SRAH ARAH
=7,050 x 12 = 6,870 x 12 $84,364
=$84,600 =$82,440
SR= Standard Rate per Labor hr = $6.11
SQ= Standard hrs required for actual Production= 1.5 x 4,700=7,050 hrs
AQ= Actual hrs worked = $6,870
Total Labor variance= SRSH- ARAH=$84,600-$84,364=$236 F
Labor price variance= SRAH- ARAH =$82,440 -$84,364=$1,924 U
Labor quantity variance= SRSH - SRAH = $84,600-$82,440=$2,160