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In: Accounting

Trico Company set the following standard unit costs for its single product. Direct materials (28 Ibs....

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.

Solutions

Expert Solution

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:


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