Question

Pato Company produces leather sandals. The company employs a standard costing
system and has the following standards in order to produce one pair of sandals:

                    standard quantity              standard price
direct materials     2 leather strips              ?? per strip
direct labor         2.5 hours                     $10 per hour
variable overhead    2.5 hours                     ?? per hour

During May, Pato purchased leather strips at a total cost of $124,520 and had
direct labor totaling $117,100. During May, Pato used 18,790 leather strips in
the production of sandals. Pato had no beginning inventories of any type for
May. At May 31, Pato had 780 leather strips remaining in its direct materials
inventory.

Pato Company reported the following variances for May:

  Direct material price variance ..............  $7,100 unfavorable
  Direct labor rate variance ..................  $29,500 favorable
  Total direct labor variance .................  $8,900 unfavorable
  Variable overhead spending variance .........  $2,440 favorable
  Variable overhead efficiency variance .......  $34,560 unfavorable

Calculate the actual variable overhead cost incurred by Pato Company in May.

Answer 1

Direct Labour rate variance = 29500 Favourable

Rate Variance = (Actual Hours * Standard Rate) - (Actual Hours * Actual Rate)

29500 = (Actual Hours * 10) - (117100)

Actual Hours = (29500 + 117100) / 10 = 14660 Hours

Actual Rate = 117100 / 14660 = 7.987 rounded off to 7.99 per hour

Total direct labour variance = 8900 Unfavourable

-8900 = (Standard Hours * Standard Rate) - (Actual Hours * Actual Rate)

-8900 = (Standard Hours * 10) - 117100

Standard Hours= (-8900 + 117100) / 10 = 10820 hours

Variable Overhead Efficiency Variance = 34560 Unfavourable

-34560 = (Standard Hours * Standard Rate) - (Actual Hours * Standard Rate)

-34560 = (10820 * Standard Rate) - (14660 * Standard Rate)

3840 * Standard Rate = 34560

Standard Rate = 9 per hour

Variable overhead spending variance = 2440 Favourable

2440 = (Actual Hours * Standard Rate) - Actual Variable Overheads

2440 = (14660 * 9) - Actual Variable Overheads

Actual Variable Overheads = $ 129500