Question

ABC Company produces widgets. ABC Company reports the following information on the production of 1 widget:

STANDARD

Direct materials:

Purchase price:                         $2.50 per pound

Discount: $0.25 per pound

Shipping: $0.30 per pound

Pounds need per widget:       12 pounds

Waste per widget:                   .5 pounds

Spoilage per widget:               .25 pounds

Direct Labor:

Hourly pay rate: $25 per hour

Payroll taxes & benefits:                    $7 per hour

Time to produce 1 widget:      10 hours

Setup time 1.5 hours

Downtime/cleanup                 .5 hours

Overhead:

Budgeted Variable overhead: $550,000

Budgeted Fixed overhead:     $400,000

Budgeted direct labor hours: 120,000 hours (cost driver for overhead)

Production (in units):              10,000 units

ACTUAL:

Direct materials used: 130,000 pounds

Direct materials cost:              $2.10 per pound

Direct labor hours:                   140,000 hours

Direct labor cost: $34 per hour

Overhead: $870,000

Actual production:                   10,000 units

A. Calculate the standard cost per widget using the standard information above,

B. Calculate the materials variance (price, quantity and total)

C. Calculate labor variance (price, quantity and total)

D. Calculate Overhead variance using the actual information above compared to the standard costs.

Answer 1

A)

	standard Quantity	standard rate	Cost per widget [SQ*SR]
Direct material	12+.5+.25=12.75	2.50-.25+.30=2.55	32.5125
Direct Labor	10+1.5+.5=12	25+7= 32	384
overhead	12	7.91667	95
	standard cost per widget		511.5125

**Overhead rate per hour = [550000+400000]/120000=7.91667 per hour

B)Material price variance = AQ[AR-SR]

           =130000[2.1 - 2.55]

           = -58500 F

Material quantity variance =SR[AQ-SQ]

               = 2.55[ 130000-(10000*12.75)]

               = 2.55 [130000-127500]

             = 6375 U

Total material variance = price variance + quantity variance

       = -58500 +6375

      = - 52125 F

C)Labor rate variance = AH[AR-SR]

         = 140000 [ 34- 32]

            = 280000 U

Labor efficiency variance = SR [AH-SH]

          = 32[140000-( 10000*12)]]

             = 32 [140000-120000]

              = 640000 U

Total variance= 280000+640000 = 920000 U

D)Overhead variance = Actual overhead -standard overhead

         = 870000 - [10000 actual units * 95 standard cost per widget]

         = 870000 - 950000

         = - 80000 F