Question

Trico Company set the following standard unit costs for its single product. Direct materials (28 Ibs. @ $5 per Ib.) $ 140.00 Direct labor (10 hrs. @ $10 per hr.) 100.00 Factory overhead—variable (10 hrs. @ $6 per hr.) 60.00 Factory overhead—fixed (10 hrs. @ $9 per hr.) 90.00 Total standard cost $ 390.00 The predetermined overhead rate is based on a planned operating volume of 60% of the productive capacity of 80,000 units per quarter. The following flexible budget information is available. Operating Levels 50% 60% 70% Production in units 40,000 48,000 56,000 Standard direct labor hours 400,000 480,000 560,000 Budgeted overhead Fixed factory overhead $ 4,320,000 $ 4,320,000 $ 4,320,000 Variable factory overhead $ 2,400,000 $ 2,880,000 $ 3,360,000 During the current quarter, the company operated at 70% of capacity and produced 56,000 units of product; actual direct labor totaled 555,000 hours. Units produced were assigned the following standard costs: Direct materials (1,568,000 Ibs. @ $5 per Ib.) $ 7,840,000 Direct labor (560,000 hrs. @ $10 per hr.) 5,600,000 Factory overhead (560,000 hrs. @ $15 per hr.) 8,400,000 Total standard cost $ 21,840,000 Actual costs incurred during the current quarter follow: Direct materials (1,563,000 Ibs. @ $5.10 per lb.) $ 7,971,300 Direct labor (555,000 hrs. @ $9.75 per hr.) 5,411,250 Fixed factory overhead costs 4,921,698 Variable factory overhead costs 4,607,547 Total actual costs $ 22,911,795 8.value: 2.40 pointsRequired information Required:

1. Compute the direct materials cost variance, including its price and quantity variances.

Answer 1

Solution:

Given,

Standared quantity of direct materials = 28*56000 = 1568000 lbs

Standared price of direct materials = $5.00 per lb

Actual quantity of direct materials = 1563000 lbs

Actual price of direct materials = $5.10 per lb

1) Direct material cost variance = -$131300 Unfavourable.

Direct material price variance = -$156300 Unfavourable.

Direct material quantity variance = $25000 Favourable.

Explanation: