Question

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

Denominator activity (direct labor-hours)	9,000
Variable manufacturing overhead cost	$ 29,250
Fixed manufacturing overhead cost	$ 96,750

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

Direct materials, 4 yards at $2.05 per yard	$ 8.20
Direct labor, 2 hour at $10.00 per hour	20.00
Manufacturing overhead, 140% of direct labor cost	28.00
Standard cost per unit	$ 56.20

During the year, the company produced 4,680 units of product and incurred the following costs:

Materials purchased, 29,700 yards at $2.00 per yard	$	59,400
Materials used in production (in yards)		19,300
Direct labor cost incurred, 10,000 hours at $8.15 per hour	$	81,500
Variable manufacturing overhead cost incurred	$	31,000
Fixed manufacturing overhead cost incurred	$	63,500

Required:
1.	Redo the standard cost card in a clearer, more usable format by detailing the variable and fixed overhead cost elements. (Round your answers to 2 decimal places.)

     

2.	Prepare an analysis of the variances for direct materials and direct labor for the year. (Indicate the effect of each variance by selecting "F" for favorable, "U" for unfavorable, and "None" for no effect (i.e., zero variance.).)

      

3.	Prepare an analysis of the variances for variable and fixed overhead for the year. (Indicate the effect of each variance by selecting "F" for favorable, "U" for unfavorable, and "None" for no effect (i.e., zero variance.).)

      

Answer 1

Answer:
a.	Standard Cost Card
	Direct material	$                       8.20
	Direect labour	$                     20.00
	Variable manufactuiring overhead	$                       6.50	($29,250/9,000 hours*2hours)
	Fixed manufacturing overhead	$                     21.50	($96,750/9,000 hours*2hours)
	Standard cost per unit	$                     56.20
b.	Direct material
	Actual Cost			Difference	Flexible Budget			Difference	Standard Cost
	Actual material	Actual Rate	Actual Cost		Actual hours	Standard rate			Standard hours	Standard rate	Standard cost
	19,300	$                       2.00	$                38,600.00		19,300.00	$                 2.05	$      39,565.00		18,720	$                 2.05	$      38,376.00
			(29,700*2)	$                965.00				$      (1,189.00)	(4680*4)
	Material price variance	$                   965.00	(39,565-38,600)	Favourable
	Material quantity variance	$             (1,189.00)	(38,376-39,565)	Unfavourable
	Material cost variance	$                (224.00)	(38,376-38,600)	Unfavourable
	Direct labour
	Actual Cost			Difference	Flexible Budget			Difference	Standard Cost
	Actual hours	Actual Rate	Actual Cost		Actual hours	Standard rate			Standard hours	Standard rate	Standard cost
	10,000	$                       8.15	$                81,500.00		10,000.00	$               10.00	$    100,000.00		9,360	$               10.00	$      93,600.00
			(10,000*8.15)	$          18,500.00				$      (6,400.00)	(4680*2)
	Labour price variance	$             18,500.00	(100,000-81,500)	Favourable
	Labour efficiency variance	$             (6,400.00)	(93,600-100,000)	Unfavourable
	Labour cost variance	$             12,100.00	(93,600-81,500)	Favourable
c.	Variable overhead Variance
	Actual Cost			Difference	Flexible Budget			Difference	Standard Cost
	Actual hours	Actual Rate	Actual Cost		Actual hours	Standard rate			Standard hours	Standard rate	Standard cost
	10,000	$                       3.10	$                31,000.00		10,000.00	$                 3.25	$      32,500.00		9,360	$                 3.25	$      30,420.00
				$             1,500.00				$      (2,080.00)
	Variable overhead rate variance	$               1,500.00	(32,500-31,000)	Favourable
	Variable overhead efficiency variance	$             (2,080.00)	(30,420-32,500)	Unfavourable
	Variable overhead cost variance	$                (580.00)	(30,420-31,000)	Unfavourable
	Fixed manufacturing overhead variance
	Budget variance	$             33,250.00	($96,750-63,500)
	Volume Variance	$             10,750.00	(10,000-9,000)*$21.5/2