Question

ABC Company manufactures abc implements. During June, the company ACTUALLY produced only 300 units of output, but they had planned for 400 units. ABC Company tracks four factory inputs: (1) direct materials, (2) direct labor, (3) variable factory overhead and (4) fixed factory overhead. Both variable and fixed factory overhead are applied using predetermined rates based on direct labor hours. For each of the following cost components, an examination of the records revealed the repective amounts:

Direct Materials:

Standard Cost per unit of materials: $3.20 per pound

Total standard cost allowed for the actual output achieved: $5,760

Direct materials quantity variance: $96 Unfavorable

Total actual cost of materials purchased and used: $5,673

Direct Labor:

Standard cost per unit of output: 2 direct labor hours at $7.00 per hour

Actual direct labor rate per hour: $7.25

Direct labor efficiency variance: $140.00 Unfavorable

Variable Factory Overhead:

Standard variable overhead cost per standard direct labor hour: $4.00 per direct labor hour

Total actual variable overhead cost: $2,250

Fixed Factory Overhead:

Budgeted fixed factory overhead: $4,800

Fixed factory overhead spending variance: $500 Favorable

Fixed factory overhead rate per standard direct labor hour: $6.00 per direct labor hour

Please, compute the following amounts and show computation/work (indicate the direction of any variance computed)

A. Total standard quantity of direct labor allowed for the actual output achieved:

B. Variable factory overhead spending variance:  and (Unfavorable or Favorable)

C. Variable factory overhead efficiency variance;  and (Unfavorable or Favorable)

D. Denominator level in standard direct labor hours:

E . Fixed factory overhead volume variance:

Thank you

Answer 1

(A) Total standard quantity of direct labor allowed for the actual output achieved :-

Actual Output * Std Hrs per unit

Actual Output = 300 units

Std hrs per unit = 2 hrs

   = 300 units * 2 hrs = 600 hrs

(B) Variable factory overhead spending variance :-

(SR – AR) * Actual Hrs

SR = $ 4

AR = ?

Direct labor efficiency variance: $140.00 Unfavorable

DL efficiency variance = (Std hrs – Actual hrs)*SR

140(U) = (600 – Actual hrs) * 7

Actual hrs = 620 hrs

AR = Actual v. OH cost/Actual hrs

= 2250/620 = 3.629

= (4 – 3.629) * 620 = 230(F)

(C) Variable factory overhead efficiency variance:-

(Std hrs – Actual Hrs) * SR

(600 – 620) * 4 = 80(U)

(D) Denominator level in standard direct labor hours :-

Actual Output * Std hr per unit

300 * 2 = 600 hrs

(E) Fixed factory overhead volume variance:-

Budgeted O/H = 4800

O/H Absorbed = Recovery rate * Actual output

Recovery rate = Budgeted OH / Budgeted output

    = 4800/400 = 12

O/H absorbed = 12 * 300 = 3600

Volume variance = 4800-3600 = 1200(U)