In: Accounting
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.
Total direct labor variance = $8,900 F
Actual direct labor cost = $117,100
Total direct labor cost variance = Standard cost of direct labor - actual cost of direct labor
$8,900 = Standard cost of direct labor - $117,100
Standard cost of direct labor = $126,000
Standard rate of direct labor = $10 per hours
Standard hours for actual production = $126,000 / $10
= 12600 hours
Direct labor efficiency variance = $29,500 + $8,900
= $38,400 F
(SH - AH) * SR = $38,400
(12600 - AH) * $10 = $38,400
Actual hours = 8760 hours
Variable overhead efficiency variance = $34,560 F
(SH - AH)* SR = $34,560
(12600 - 8760) * SR= $34,560
Standard rate of variable overhead = $9 per hour
Standard variable overhead cost = 12600 * $9
= $113400
Variable overhead spending variance = $2440 F
Standard cost of variable overhead - Actual cost of variable overhead = $2440
$113400 - Actual cost of variable overhead = $2440
Actual cost of variable overhead = $113400 - $2440
= $110960