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Trico Company set the following standard unit costs for its single product.

Direct materials (30 Ibs. @ $4 per Ib.)	$	120.00
Direct labor (5 hrs. @ $14 per hr.)		70.00
Factory overhead—Variable (5 hrs. @ $8 per hr.)		40.00
Factory overhead—Fixed (5 hrs. @ $10 per hr.)		50.00
Total standard cost	$	280.00

The predetermined overhead rate is based on a planned operating volume of 80% of the productive capacity of 60,000 units per quarter. The following flexible budget information is available.

	Operating Levels
		70%		80%		90%
Production in units		42,000		48,000		54,000
Standard direct labor hours		210,000		240,000		270,000
Budgeted overhead
Fixed factory overhead	$	2,400,000	$	2,400,000	$	2,400,000
Variable factory overhead	$	1,680,000	$	1,920,000	$	2,160,000

During the current quarter, the company operated at 90% of capacity and produced 54,000 units of product; actual direct labor totaled 265,000 hours. Units produced were assigned the following standard costs.

Direct materials (1,620,000 Ibs. @ $4 per Ib.)	$	6,480,000
Direct labor (270,000 hrs. @ $14 per hr.)		3,780,000
Factory overhead (270,000 hrs. @ $18 per hr.)		4,860,000
Total standard cost	$	15,120,000

Actual costs incurred during the current quarter follow.

Direct materials (1,615,000 Ibs. @ $4.10 per lb.)	$	6,621,500
Direct labor (265,000 hrs. @ $13.75 per hr.)		3,643,750
Fixed factory overhead costs		2,350,000
Variable factory overhead costs		2,200,000
Total actual costs	$	14,815,250

Required:
1. Compute the direct materials cost variance, including its price and quantity variances.
2. Compute the direct labor cost variance, including its rate and efficiency variances.
3. Compute the overhead controllable and volume variances.

Answer 1

1)
Direct Material Price Variance = (SP − AP ) × AQ PURCHASED
Direct Material Price Variance = (4.00-4.10) × 1615000
Direct Material Price Variance	$                                       -1,61,500	Unfavourable variance
Direct Material effeciency Variance = (AQ USED − SQ USAGE ) × SP
Direct Material effeciency Variance = (1615000 − 1620000) × 4.00
Direct Material effeciency Variance	$                                           20,000	Favourable variance
Direct Material cost Variance = Actual costs - standard costs
Direct Material cost Variance = 6,621,500-6,480,000
Direct Material cost Variance =	$                                       -1,41,500	Unfavourable variance
2)
Labour rate variance = (Actual rate - standard rate) * actual hours
Labour rate variance = (13.75 -14) * 265000
Labour rate variance	$                                           66,250	Favourable variance
Labor Efficiency Variance = (actual hours - standard hours ) * standard rate
Labor Efficiency Variance = (265000 -270000)* 14
Labor Efficiency Variance	$                                           70,000	Favourable variance
Direct Labour cost Variance = Actual costs - standard costs
Direct Labour cost Variance = 3,643,750 - 3,780,000
Direct Labour cost Variance =	$                                        1,36,250	Favourable variance
3)
Variable OH controllable variance = Actual VOH - Standard VOH
Variable OH controllable variance = 2200000 - 2160000
Variable OH controllable variance	$                                          -40,000	Unfavourable variance
Fixed OH controllable variance = Actual FOH - Standard FOH
Fixed OH controllable variance = 2350000 - 2400000
Fixed OH controllable variance	$                                           50,000	Favourable variance
Fixed OH volume variance= Applied Fixed Overhead – Budgeted Fixed Overhead
Applied Fixed Overhead = Standard Fixed Overhead Rate × Standard Hours Allowed
Applied Fixed Overhead = 10 X 270000
Applied Fixed Overhead =	$                                      27,00,000
Fixed OH volume variance= 2700000 – 2400000
Fixed OH volume variance	$                                        3,00,000	Favourable variance

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