Question

Trico Company set the following standard unit costs for its single product.

Direct materials (30 Ibs. @ $5.10 per Ib.)	$	153.00
Direct labor (4 hrs. @ $15 per hr.)		60.00
Factory overhead—variable (4 hrs. @ $6 per hr.)		24.00
Factory overhead—fixed (4 hrs. @ $10 per hr.)		40.00
Total standard cost	$	277.00

The predetermined overhead rate is based on a planned operating volume of 80% of the productive capacity of 68,000 units per quarter. The following flexible budget information is available.

	Operating Levels
		70%		80%		90%
Production in units		47,600		54,400		61,200
Standard direct labor hours		190,400		217,600		244,800
Budgeted overhead
Fixed factory overhead	$	2,176,000	$	2,176,000	$	2,176,000
Variable factory overhead	$	1,142,400	$	1,305,600	$	1,468,800

During the current quarter, the company operated at 90% of capacity and produced 61,200 units of product; actual direct labor totaled 238,800 hours. Units produced were assigned the following standard costs.

Direct materials (1,836,000 Ibs. @ $5.10 per Ib.)	$	9,363,600
Direct labor (244,800 hrs. @ $15 per hr.)		3,672,000
Factory overhead (244,800 hrs. @ $16 per hr.)		3,916,800
Total standard cost	$	16,952,400

Actual costs incurred during the current quarter follow.

Direct materials (1,822,000 Ibs. @ $6.70 per lb.)	$	12,207,400
Direct labor (238,800 hrs. @ $12.10 per hr.)		2,889,480
Fixed factory overhead costs		1,942,700
Variable factory overhead costs		1,668,700
Total actual costs	$	18,708,280

Required:

1. Compute the direct materials cost variance, including its price and quantity variances.
2. Compute the direct labor cost variance, including its rate and efficiency variances.

3. Compute the overhead controllable and volume variances.

Answer 1

Solution 1:

Direct Material Cost Variance
Actual Cost					Standard cost for actual quantity					Standard Cost
AQ *	AP =				AQ *	SP =				SQ *	SP =
1822000	$6.70	$12,207,400.00			1822000	$5.10	$9,292,200.00			1836000	$5.10	$9,363,600.00
			$2,915,200.00	U				$71,400.00	F
			Direct Material Price Variance					Direct Material Qty variance
Direct material price variance					$2,915,200.00	U
Direct material quantity variance					$71,400.00	F
Direct material cost variance					$2,843,800.00	U

Solution 2:

Direct Labor Cost Variance
Actual Cost					Standard cost for actual quantity					Standard Cost
AH *	AR =				AH *	SR =				SH *	SR =
238800	$12.10	$2,889,480.00			238800	$15.00	$3,582,000.00			244800	$15.00	$3,672,000.00
			$692,520.00	F				$90,000.00	F
			Direct Labor rate Variance					Direct Labor Efficiency Variance
Direct Labor Rate variance					$692,520.00	F
Direct Labor Efficiency variance					$90,000.00	F
Direct labor cost variance					$782,520.00	F

Solution 3:

Controllable Variance
Actual overhead	$3,611,400.00
Budgeted overhead	$3,644,800.00
Controllable variance	$33,400.00	F

Fixed overhead volume variance
Budgeted fixed overhead	$2,176,000.00
Fixed overhead cost applied	$2,448,000.00
Fixed overhead volume variance	$272,000.00	F