Question

You have recently accepted a position with Vitex, Inc., the manufacturer of a popular consumer product. During your first week on the job, the vice president has been favorably impressed with your work. She has been so impressed, in fact, that yesterday she called you into her office and asked you to attend the executive committee meeting this morning for the purpose of leading a discussion on the variances reported for last period. Anxious to favorably impress the executive committee, you took the variances and supporting data home last night to study.

    

On your way to work this morning, the papers were laying on the seat of your new, red convertible. As you were crossing a bridge on the highway, a sudden gust of wind caught the papers and blew them over the edge of the bridge and into the stream below. You managed to retrieve only one page, which contains the following information:

Standard Cost Card
Direct materials, 2.20 pounds at $16.50 per pound	$	36.30
Direct labor, 1.00 direct labor-hours at $15.60 per direct labor-hour	$	15.60
Variable manufacturing overhead, 1.00 direct labor-hours at $9.60 per direct labor-hour	$	9.60

	Total Standard Cost*		Variances Reported
			Price or Rate			Quantity or Efficiency
Direct materials	$	617,100	$	11,426	F	$	33,000	U
Direct labor	$	265,200	$	3,600	U	$	15,600	U
Variable manufacturing overhead	$	163,200	$	4,100	F	$	? †	U

^*Applied to Work in Process during the period.

^† Entry obliterated.

You recall that manufacturing overhead cost is applied to production on the basis of direct labor-hours and that all of the materials purchased during the period were used in production. Work in process inventories are insignificant and can be ignored.

It is now 8:30 a.m. The executive committee meeting starts in just one hour; you realize that to avoid looking like a bungling fool you must somehow generate the necessary “backup” data for the variances before the meeting begins. Without backup data it will be impossible to lead the discussion or answer any questions..

5. What was the actual rate paid per direct labor-hour? (Round your answer to 2 decimal places.)

6. How much actual variable manufacturing overhead cost was incurred during the period?

Answer 1

5. Total standard labor cost = $265200
Cost per direct labor hour = $15.6
Standard Labor hours = 265200 / 15.6 = 17000
Now, for calculating the actual labor hours used, we need the help of direct labor efficiency variance
Direct Labor efficiency variance = (Standarad hours - actual hours) x standard rate
i.e. -15600 = (17000 - Actual hours) x 15.6
so, Actual direct labor hours used = 18000
The actual rate paid per direct labor hour can be calculated with the help of Direct labor price variance
Direct labor price variance = (standard rate - actual rate) x actual hours
i.e. -3600 = (15.6 - Actual rate) x 18000
So, the Actual loabor hour rate = $15.8
6. The same way we did for Labor cost, we need to find the actual rate of variable overheads
Now, we know that the standard labor hours used = 17000
and the actual labor hours used were 18000
Variable overhead expenditure variance = (standard rate - actual rate) x actual hours
i.e. 4100 = (9.6 - Actual rate) x 18000
So, the actual rate for variable overheads = $9.37 per hour
actual variable manufacturing overhead cost = 18000 x 9.37 = $168660