Costello Corporation manufactures a single product. The standard cost per unit o
ID: 2485603 • 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 14,500 direct labor hours (5,800 units) for the month. The master budget showed total variable costs of $79,750 ($5.50 per hour) and total fixed overhead costs of $152,250 ($10.50 per hour). Actual costs for October in producing 3,400 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.Explanation / Answer
Material price variance = actual quantity * actual price - actual quantity * standard price
= 6940 * 7.09 - 6940 * 6.80
= 49205 - 47192
= 2013 favourable.
Material quantity variance = [ standard quantity - actual quantity ] * standard price
= [ 6800 - 6940] * 6.80
= 952 unfavourable
Total material variance = 2013 favourable -952 unfavourable
= 1061 favourable
Labor price variance = [ standard rate - actual rate ] * actual hours
= [ 12 - 12.33 ] * 8370
= 2762.1 unfavourable
Labor quantity variance = [ standard hours - actual hours ] * standard rate
= [ 8500 - 8370 ] * 12
= 1560 favourable
Total labor variance = 2762.1 unfavourable + 1560 favourable
= 1201.1 unfavourable.