Question

Rogen Corporation manufactures a single product. The standard cost per unit of product is shown below.

Direct materials—1 pound plastic at $6.00 per pound		$ 6.00
Direct labor—2.5 hours at $11.30 per hour		28.25
Variable manufacturing overhead		17.50
Fixed manufacturing overhead		7.50
Total standard cost per unit		$59.25

The predetermined manufacturing overhead rate is $10.00 per direct labor hour ($25.00 ÷ 2.5). 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 $101,500 ($7.00 per hour) and total fixed overhead costs of $43,500 ($3.00 per hour). Actual costs for October in producing 4,600 units were as follows.

Direct materials (4,710 pounds)		$ 29,202
Direct labor (11,400 hours)		132,240
Variable overhead		85,098
Fixed overhead		32,202
Total manufacturing costs		$278,742

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.

(a)

Compute all of the materials and labor variances.

Total materials variance		$		UnfavorableNeither favorable nor unfavorableFavorable
Materials price variance		$		Neither favorable nor unfavorableUnfavorableFavorable
Materials quantity variance		$		UnfavorableFavorableNeither favorable nor unfavorable
Total labor variance		$		FavorableNeither favorable nor unfavorableUnfavorable
Labor price variance		$		FavorableNeither favorable nor unfavorableUnfavorable
Labor quantity variance		$		UnfavorableNeither favorable nor unfavorableFavorable

(b)

Compute the total overhead variance.

Total overhead variance

$

Answer 1

(a) Total Material Variance = Actual material Cost – Standard material Cost

Standard material cost = 4600 units * $6 = $27600

$29202 - $27600 = $1602 Unfavorable

Material Price variance = (AP – SP) * AQ

AP = $29202/4710 pound = $6.20

($6.2 - $6) * 4710 = $942 Unfavorable

Material Quantity Variance = (AQ – SQ) * SP

SQ = 4600 units * 1 pound = 4600 pound

(4710 – 4600) * $6 = $660 Unfavorable

Total Labor variance = Actual labor Cost – Standard labor Cost

Standard labor cost = $28.25 * 4600 units = $129950

$132240 - $129950 = $2290 Unfavorable

Labor Price variance = (AP – SP) * A Hrs

AP = $132240/11400 hours = $11.60

($11.6 - $11.3) * 11400 = $3420 Unfavoable

Labor Quantity Variance = (A Hrs – S Hrs) * SP

S Hrs = 4600 units * 2.5 hours = 11500 hours

(11400 – 11500) * $11.30 = $1130 Favorable

(b) Total Overhead variance = Actual Overhead – Overhead Applied

Actual Overhead = Variable + Fixed

            = $85098 + $32202 = $117300

Overhead Applied = Standard hours * Predetermined Overhead rate

           = 11500 hours * $10 = $115000

Variance = $117300 - $115000 = $2300 Unfavorable