Question

O.G. Company produces widgets. O.G. 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

Calculate the standard cost per widget using the standard information above, and then calculate the materials variance (price, quantity and total), the labor variance (price, quantity and total) and the overhead variance using the actual information above compared to the standard costs.

Answer 1

Standard Quantity required to prepare a single unit of widget:

Material requirement per widget = 12 pounds

Add: allowance for waste per widget = 0.5 pounds

Allowance for spoilage per widget = 0.25 pounds

Standard quantity required per Widget = 12.75 pounds

Total standard quantiy to produce 10,000 widgets = 10,000 x 12.75 pounds = 127,500 pounds

Calculation of Standard price per widget:

Material purchase price per pound = $2.5 per pound

Less: Discount per pound = $0.25 per pound

Add: Shipping charges per pound = $0.30 per pound  

Standard material price per pound = $2.55 per pound

Standard material price per widget = 12.75 pounds x $2.55 per pound = $32.5  

Calculaton of Standard labors hours per widget:

Labor hours per widget = 10 hours

Setup time = 1.5 hours

Downtime/cleanup = 0.5 hours

Labor hours per widget = 12 hours

Standard labor hours to produce 10,000 widgets = 10,000 x 12 = 120,000 hours

Calculation of labor cost per widget:

Hourly pay rate: = $25 per hour

Payroll taxes & benefits: = $7 per hour

Standard Labor cost per hour = $33 per hour

labor cost per widget = 12 hours x $25 per hour = $300 per widget.

  

Calculation of Standard cost per Widget:

a. Budgeted production = 10,000 units

b. Total standard cost to produce 10,000 units

Direct mateial cost = 10,000 widgets x $32.5 per widget = $325,000

Direct labor cost = 10,000 widgets x $300 per widget = $3,000,000

Overhead cost = $550,000 + 400,000 = $950,000

Total Standard cost per widget = $4,275,000

Therefore, Standard cost per unit = Total standard cost ÷ Total budgeted production

= $4,275,000 ÷ 10,000 units

= $4,275

Calculation of variances:

Material variance:

Material price variance = Actual quantity x (Standard price - Actual price)

= 130,000 pounds x ($2.55 - $2.10)

= $58,500 (Favourable)

Material Quantity variance = Standard price x (Standard quantity - Actual qunatity)

= $2.55 x (127,500 pounds - 130,000 pounds)

= $6,375 (Adverse or unfavourable)

Material variance = (Standard quantity x Standard price) - (Actual quantiy x Actual price)

= (127,500 pounds x $2.55 per pound) - (130,000 pounds x $2.10 per pound)

= $325,125 - $273,000

= $52,125 (Favourable)

Labor variane:

Labour rate variance = Actual time x (Std. rate - Actual rate)

= 140,000 hours x ($33 per hour - $34 per hour)

= $140,000 (Adverse)

Labor hour variance / labor efficiancy variance = Std. rate per hour x (Std. hours - Actual hours)

= $33 per hour x (120,000 hours - 140,000 hours)

= $660,000 (Adverse)

Labor cost variance = Labor rate variance + Labor hour variance

= $140,000 + $660,000

= $800,000 (Adverse)

Overhead variance:

Overhead cost variance = Standard variable cost - Actual variable cost

= ($550,000 + $400,000) - $870,000

= $80,000 (Favourable)

Hope this is useful and thank u!!!!!!!!