Question

Flandro Company uses a standard cost system and sets its predetermined overhead rate on the basis of direct labor-hours. The following data are taken from the company’s planning budget for the current year:

Denominator activity (direct labor-hours)		11,000
Variable manufacturing overhead cost	$	34,650
Fixed manufacturing overhead cost	$	77,550

The standard cost card for the company’s only product is given below:

Inputs	(1) Standard Quantity or Hours	(2) Standard Price or Rate			Standard Cost (1) × (2)
Direct materials	4 yards	$	1.95	per yard	$	7.80
Direct labor	2 hours	$	8.50	per hour		17.00
Manufacturing overhead	2 hours	$	10.20	per hour		20.40
Total standard cost per unit					$	45.20

During the year, the company produced 5,720 units of product and incurred the following actual results:

Materials purchased, 36,300 yards at $1.90 per yard	$	68,970
Materials used in production (in yards)		23,600
Direct labor cost incurred, 12,000 hours at $8.05 per hour	$	96,600
Variable manufacturing overhead cost incurred	$	35,900
Fixed manufacturing overhead cost incurred	$	75,000

Required:

1. Create a new standard cost card that separates the variable manufacturing overhead per unit and the fixed manufacturing overhead per unit.

2. Compute the materials price and quantity variances. Also, compute the labor rate and efficiency variances.

3. Compute the variable overhead rate and efficiency variances. Also, compute the fixed overhead budget and volume variances.

Answer 1

• [1]

Direct material	4	yards at	$                     1.95	per yards	$                     7.80
Direct Labor	2	DLHS at	$                     8.50	per DLH	$                  17.00
Variabl overhead	2	DLHS at	$                     3.15	per DLH	$                     6.30
Fixed overhead	2	DLHS at	$                     7.05	per DLH	$                  14.10
Standard cost per unit					$                  45.20

• Workings

Actual DATA for		5720	units
	Quantity (AQ)	Rate (AR)	Actual Cost
Direct Material	36300	$                   1.90	$           68,970.00
Direct labor	12000	$                   8.05	$           96,600.00
Variable Overhead	12000	$                   2.99	$           35,900.00

Standard DATA for		5720	units
	Quantity (SQ)	Rate (SR)	Standard Cost
	[A]	[B]	[A x B]
Direct Material	( 4 mtrs x 5720 units)=22880 mtrs	$                   1.95	$       44,616.00
Direct labor	( 2 hours x 5720 units)=11440 hours	$                   8.50	$       97,240.00
Variable Overhead	( 2 hours x 5720 units)=11440 hours	$                   3.15	$       36,036.00

• [2]

Material Price Variance
(	Standard Rate	-	Actual Rate	)	x	Actual Quantity
(	$                               1.95	-	$                       1.90	)	x	36300
	1815
	Variance		$              1,815.00			Favourable-F

OR

Material Price Variance
(	Standard Rate	-	Actual Rate	)	x	Actual Quantity
(	$                               1.95	-	$                       1.90	)	x	23600
	1180
	Variance		$              1,180.00			Favourable-F
Material Quantity Variance
(	Standard Quantity	-	Actual Quantity	)	x	Standard Rate
(	22880	-	23600	)	x	$                           1.95
	-1404
	Variance		$              1,404.00			Unfavourable-U

Labor Rate Variance
(	Standard Rate	-	Actual Rate	)	x	Actual Labor Hours
(	$                               8.50	-	$                       8.05	)	x	12000
	5400
	Variance		$              5,400.00			Favourable-F
Labour Efficiency Variance
(	Standard Hours	-	Actual Hours	)	x	Standard Rate
(	11440	-	12000	)	x	$                           8.50
	-4760
	Variance		$              4,760.00			Unfavourable-U

• [3]

Variable Overhead Rate Variance
(	Standard Rate	-	Actual Rate	)	x	Actual Labor Hours
(	$                               3.15	-	$                       2.99	)	x	12000
	1900
	Variance		$              1,900.00			Favourable-F
Variable Overhead Efficiency Variance
(	Standard Hours	-	Actual Hours	)	x	Standard Rate
(	11440	-	12000	)	x	$                           3.15
	-1764
	Variance		$              1,764.00			Unfavourable-U

Fixed Overhead Production Budget Variance
(	Budgeted Fixed Overhead	-	Actual Fixed Overhead incurred	)
(	$                    77,550.00	-	$            75,000.00	)
	2550
	Variance		$              2,550.00			Favourable-F

Fixed Overhead Production Volume Variance
(	Standard Fixed Overhead or Fixed Overhead absorbed	-	Budgeted Fixed Overhead	)
(	$                    80,652.00	-	$            77,550.00	)
	3102
	Variance		$              3,102.00			Favourable-F