Question

Flandro Company uses a standard cost system and sets its predetermined overhead rate on the basis of direct labor-hours. The following data are taken from the company’s planning budget for the current year:

Denominator activity (direct labor-hours)		11,000
Variable manufacturing overhead cost	$	34,650
Fixed manufacturing overhead cost	$	77,550

The standard cost card for the company’s only product is given below:

Inputs	(1) Standard Quantity or Hours	(2) Standard Price or Rate			Standard Cost (1) × (2)
Direct materials	4 yards	$	1.95	per yard	$	7.80
Direct labor	2 hours	$	8.50	per hour		17.00
Manufacturing overhead	2 hours	$	10.20	per hour		20.40
Total standard cost per unit					$	45.20

During the year, the company produced 5,720 units of product and incurred the following actual results:

Materials purchased, 36,300 yards at $1.90 per yard	$	68,970
Materials used in production (in yards)		23,600
Direct labor cost incurred, 12,000 hours at $8.05 per hour	$	96,600
Variable manufacturing overhead cost incurred	$	35,900
Fixed manufacturing overhead cost incurred	$	75,000

Required:

1. Create a new standard cost card that separates the variable manufacturing overhead per unit and the fixed manufacturing overhead per unit.

2. Compute the materials price and quantity variances. Also, compute the labor rate and efficiency variances.

3. Compute the variable overhead rate and efficiency variances. Also, compute the fixed overhead budget and volume variances.

Answer 1

Part 1

Standard cost card

Inputs	standard quantity or hours	standard price (rate)	Standard cost
Variable cost
Direct materials	4	1.95	7.80
Direct labor	2	8.50	17.00
Variable manufacturing overhead	2	3.15 (34650/11000)	6.30
Total standard variable cost per unit			31.10
Fixed costs Fixed manufacturing overhead	2	7.05 (77550/11000)	14.10
Total standard cost per unit			45.20

Part 2

Materials price variance = AQ*(AP-SP) = 36300*(1.90-1.95)=1815 F

Materials quantity variance = SP *(AQ-SQ) =1.95*(23600-(5720*4))= 1404 U

Labor rate variance = AH * (AR - SR) = 12000*(8.05-8.50)= 5400 F

Labor efficiency variance = SR *(AH - SH) =8.50*(12000-(5720*2))=4760 U

Part 3

Variable overhead rate variance = Actual VOH - (SR*AH) = 35900-(3.15*12000) = 1900 F

Variable efficiency variance = SR*(AH - SH) = 3.15*(12000-(5720*2))= 1764 U

Fixed overhead budget = actual FOH - Budgeted overhead = 75000-(12000*7.05)= 9600 F

FOH volume variance = budget overhead - allocated overhead = (12000*7.05)-((5720*2)*7.05)= 3948 U