Question

Pato Company produces leather sandals. The company employs a standard costing
system and has the following standards in order to produce one pair of sandals:

                    standard quantity              standard price
direct materials     2 leather strips              ?? per strip
direct labor         2.5 hours                     $12 per hour
variable overhead    2.5 hours                     ?? per hour

During May, Pato purchased leather strips at a total cost of $124,250 and had
direct labor totaling $171,100. During May, Pato used 13,600 leather strips in
the production of sandals. Pato had no beginning inventories of any type for
May. At May 31, Pato had 600 leather strips remaining in its direct materials
inventory.

Pato Company reported the following variances for May:

  Direct material price variance ..............  $7,100 favorable
  Direct labor rate variance ..................  $29,500 unfavorable
  Total direct labor variance .................  $8,900 favorable
  Variable overhead spending variance .........  $2,440 favorable
  Variable overhead efficiency variance .......  $34,560 favorable

Calculate the actual variable overhead cost incurred by Pato Company in May.

Answer 1

Solution:

Total direct labor variance = $8,900 F

Actual direct labor cost = $171,100

Total direct labor cost variance = Standard cost of direct labor - actual cost of direct labor

$8,900 = Standard cost of direct labor - $171,100

Standard cost of direct labor = $180,000

standard rate of direct labor = $12 per hours

Standard hours for actual production = $180,000 / $12 = 15000 hours

Direct labor efficiecny variance = $29,500 + $8,900 = $38,400 F

(SH - AH) * SR = $38,400

(15000 - AH) * $12 = $38,400

Actual hours = 11800 hours

Variable overhead efficiency variance = $34,560 F

(SH - AH)* SR = $34,560

(15000 - 11800) * SR= $34,560

Standard rate of variable overhead = $10.80 per hour

Standard variable overhead cost = 15000 * $10.80 = $162,000

Variable overhead spending variance = $2,440 F

Standard cost of variable overhead - Actual cost of variable overhead = $2,440

$162,000 - Actual cost of variable overhead = $2,440

Actual cost of variable overhead = $162,000 - $2,440 = $159,560