Question

Gallego Corporation makes a product with the following standard costs:

		Standard Quantity or Hours	Standard Price or Rate
	Direct materials	3.1 pounds	$6.00 per pound
	Direct labor	0.8 hours	$18.00 per hour
	Variable overhead	0.8 hours	$6.00 per hour

In October the company produced 3,000 units using 8,380 pounds of the direct material and 2,610 direct labor-hours. During the month, the company purchased 9,500 pounds of the direct material at a total cost of $55,100. The actual direct labor cost for the month was $48,546 and the actual variable overhead cost was $16,965. The company applies variable overhead on the basis of direct labor-hours. The direct materials price variance is computed when the materials are purchased.

b. Compute the labor rate variance and the labor efficiency variance. Indicate whether each variance is favorable or unfavorable

c. Compute the variable overhead rate variance and the variable overhead efficiency variance. Indicate whether each variance is favorable or unfavorable

d. Briefly explain one possible cause of each variance computed in parts a. and b. above. Do not use the same possible cause more than once. You do not need to provide possible causes for the variances computed in part c

Answer 1

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