Question

Problem 08-3A Flexible budget preparation; computation of materials, labor, and overhead variances; and overhead variance report LO P1, P2, P3, P4

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Antuan Company set the following standard costs for one unit of its product.

Direct materials (4.0 Ibs. @ $5.00 per Ib.)	$	20.00
Direct labor (1.8 hrs. @ $13.00 per hr.)		23.40
Overhead (1.8 hrs. @ $18.50 per hr.)		33.30
Total standard cost	$	76.70

The predetermined overhead rate ($18.50 per direct labor hour) is based on an expected volume of 75% of the factory’s capacity of 20,000 units per month. Following are the company’s budgeted overhead costs per month at the 75% capacity level.

Overhead Budget (75% Capacity)
Variable overhead costs
Indirect materials	$	15,000
Indirect labor		75,000
Power		15,000
Repairs and maintenance		30,000
Total variable overhead costs				$	135,000
Fixed overhead costs
Depreciation—Building		24,000
Depreciation—Machinery		72,000
Taxes and insurance		17,000
Supervision		251,500
Total fixed overhead costs					364,500
Total overhead costs				$	499,500

The company incurred the following actual costs when it operated at 75% of capacity in October.

Direct materials (60,500 Ibs. @ $5.10 per lb.)				$	308,550
Direct labor (23,000 hrs. @ $13.20 per hr.)					303,600
Overhead costs
Indirect materials	$	41,000
Indirect labor		176,000
Power		17,250
Repairs and maintenance		34,500
Depreciation—Building		24,000
Depreciation—Machinery		97,200
Taxes and insurance		15,300
Supervision		251,500			656,750
Total costs				$	1,268,900

rev: 04_27_2020_QC_CS-209738

Problem 08-3A Part 4

4. Compute the direct labor cost variance, including its rate and efficiency variances. (Indicate the effect of each variance by selecting for favorable, unfavorable, and No variance. Round "Rate per hour" answers to two decimal places.)

Answer 1

• Requirement 4

Calculation and answers

Actual Cost								Standard Cost
AH	x	AR		AH	x	SR		SH = 15000 units x 1.8 per unit	x	SR
23,000	x	$                13.20		23,000	x	$        13.00		27,000	x	$              13.00
	$          303,600.00				$     299,000.00				$           351,000.00
Rate Variance - Labor			$         4,600.00	Efficency Variance - Labor			$       52,000.00
Labor Rate Variance					$                                                                   4,600.00			Unfavourable
Labor Efficiency Variance					$                                                                 52,000.00			Favourable
Total Labor Cost (Spending) Variance)					$                                                                 47,400.00			Favourable
Note:
>	Labor Price Variance is Unfavourable because Actual rate (AR) is MORE than Standard Rate (SR)
>	Labor quantity or Efficiency Variance is favourable because Actual Hrs (AH) is LESS than Standard Hrs (SH)

Labor Rate Variance
(	Standard Rate	-	Actual Rate	)	x	Actual Labor Hours
(	$                             13.00	-	$                    13.20	)	x	23000
	-4600
	Variance		$              4,600.00			Unfavourable-U
Labour Efficiency Variance
(	Standard Hours	-	Actual Hours	)	x	Standard Rate
(	27000	-	23000	)	x	$                        13.00
	52000
	Variance		$            52,000.00			Favourable-F
Labor Spending Variance
(	Standard Cost	-	Actual Cost	)
(	$                  351,000.00	-	$          303,600.00	)
	47400
	Variance		$            47,400.00			Favourable-F