Question

Antuan Company set the following standard costs for one unit of its product. Direct materials (4.0 Ibs. @ $5.00 per Ib.) $ 20.00 Direct labor (1.7 hrs. @ $10.00 per hr.) 17.00 Overhead (1.7 hrs. @ $18.50 per hr.) 31.45 Total standard cost $ 68.45 The predetermined overhead rate ($18.50 per direct labor hour) is based on an expected volume of 75% of the factory’s capacity of 20,000 units per month. Following are the company’s budgeted overhead costs per month at the 75% capacity level. Overhead Budget (75% Capacity) Variable overhead costs Indirect materials $ 15,000 Indirect labor 75,000 Power 15,000 Repairs and maintenance 30,000 Total variable overhead costs $ 135,000 Fixed overhead costs Depreciation—Building 23,000 Depreciation—Machinery 70,000 Taxes and insurance 17,000 Supervision 226,750 Total fixed overhead costs 336,750 Total overhead costs $ 471,750 The company incurred the following actual costs when it operated at 75% of capacity in October. Direct materials (61,500 Ibs. @ $5.10 per lb.) $ 313,650 Direct labor (20,000 hrs. @ $10.30 per hr.) 206,000 Overhead costs Indirect materials $ 41,550 Indirect labor 176,000 Power 17,250 Repairs and maintenance 34,500 Depreciation—Building 23,000 Depreciation—Machinery 94,500 Taxes and insurance 15,300 Supervision 226,750 628,850 Total costs $ 1,148,500 rev: 03_28_2018_QC_CS-122864 4. Compute the direct labor cost variance, including its rate and efficiency variances. AH = Actual Hours SH = Standard Hours AR = Actual Rate SR = Standard Rate

Answer 1

Answer- 4)- Direct Labor rate variance = $ 6000 U

Direct Labor Efficiency variance = $140000 F

Explanation-

Direct Labor rate variance = (Standard rate – Actual rate) * Actual hours

                                       = ($10.00 per hour – $10.30 per hour)* 20000 hours   

                                       = $6000 U

Direct Labor Efficiency variance=(Standard hours-Actual hours)*Standard rate per hour

                                       =(34000 hours – 20000 hours)*$10.00 per hour

                                          = $140000 Favorable

Where:-

Standard Hours = No. of hours per unit*Actual output

                               = 1.7 hour per unit*20000 units= 34000 hours