Costello Corporation manufactures a single product. The standard cost per unit o
ID: 2476617 • 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 ($40.00 2.50). It was computed from a master manufacturing overhead budget based on normal production of 14,750 direct labor hours (5,900 units) for the month. The master budget showed total variable costs of $88,500 ($6.00 per hour) and total fixed overhead costs of $147,500 ($10.00 per hour). Actual costs for October in producing 3,200 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. Compute all of the materials and labor variances. Compute the total overhead variance. Total overhead variance $Explanation / Answer
Material Price variance = ( Actual price - standard price ) * actual quantity = (45207/6590 - 6.68) * 6590 = ( 6.86 - 6.68) * 6590 = 0.18 * 6590 = 1186.20 unfavourable Material quantity variance = ( standard quantity - actual quantity) * standard price = ( 3200 *2 - 6590) * 6.68 = ( 6400 - 6590) * 6.68 = 190 * 6.68 = 1269.2 unfavourable Total material variance = material price variance + material quantity variance = 1186.20 unfavourable + 1269.20 unfavourable = 2455.40 unfavourable Labor price variance = ( Actual rate -standard rate ) * actual hours = ( 88444/7820 - 11) * 7820 = ( 11.31 - 11) * 7820 = 0.31 * 7820 = 2424.20 unfavourable Labor quantity variance = ( standard hours - actual hours) * standard rate = ( 3200 * 2.50 - 7820) * 11 = ( 8000 - 7820) * 11 = 180 * 11 = 1980 favourable Total labor variance = Labor price variance + labor quantity variance = 2424.20 unfavourable + 1980 favourable = 444.20 unfavourable variable overhead spending variance = Actual variable overhead - Actual hours * standard variable overhead rate = 94334 - 7820 * 6 = 94334 - 46920 = 47414 unfavourable variable overhead efficiency variance = ( actual hours - standard hours) * standard rate = ( 7820 - 8000) * 6 = 180 * 6 = 1080 favourable 46334 Total variable overhead variance = overhead spending variance + efficiency variance = 47414 unfavourable + 1080 favourable = 46334 unfavourable Fixed overhead total variance = Actual fixed overhead - Actual output * fixed overhead applied rate = 35796 - 3200 * 10 = 35796 - 32000 = 3796 unfavourable