Question

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

Direct materials (30 Ibs. @ $4.40 per Ib.)	$	132.00
Direct labor (6 hrs. @ $14 per hr.)		84.00
Factory overhead—variable (6 hrs. @ $8 per hr.)		48.00
Factory overhead—fixed (6 hrs. @ $11 per hr.)		66.00
Total standard cost	$	330.00

The predetermined overhead rate is based on a planned operating volume of 80% of the productive capacity of 60,000 units per quarter. The following flexible budget information is available.

	Operating Levels
		70%		80%		90%
Production in units		42,000		48,000		54,000
Standard direct labor hours		252,000		288,000		324,000
Budgeted overhead
Fixed factory overhead	$	3,168,000	$	3,168,000	$	3,168,000
Variable factory overhead	$	2,016,000	$	2,304,000	$	2,592,000

During the current quarter, the company operated at 90% of capacity and produced 54,000 units of product; actual direct labor totaled 265,000 hours. Units produced were assigned the following standard costs.

Direct materials (1,620,000 Ibs. @ $4.40 per Ib.)	$	7,128,000
Direct labor (324,000 hrs. @ $14 per hr.)		4,536,000
Factory overhead (324,000 hrs. @ $19 per hr.)		6,156,000
Total standard cost	$	17,820,000

Actual costs incurred during the current quarter follow.

Direct materials (1,339,000 Ibs. @ $6.20 per lb.)	$	8,301,800
Direct labor (265,000 hrs. @ $12.00 per hr.)		3,180,000
Fixed factory overhead costs		2,442,900
Variable factory overhead costs		2,736,900
Total actual costs	$	16,661,600

Problem 21-4A Computation of materials, labor, and overhead variances LO P2, P3

Required:
1. Compute the direct materials cost variance, including its price and quantity variances.

AQ = Actual Quantity
SQ = Standard Quantity
AP = Actual Price
SP = Standard Price

	Actual Cost Standard Cost $0 0 $0 $0 0

2. Compute the direct labor cost variance, including its rate and efficiency variances.

AH = Actual Hours
SH = Standard Hours
AR = Actual Rate
SR = Standard Rate

Actual Cost								Standard Cost
			$0	0			$0
				$0
				0

3. Compute the overhead controllable and volume variances.

	Controllable Variance Actual overhead Budgeted overhead Controllable variance

Answer 1

• All working forms part of the answer
• Requirement 1: Compute the direct materials cost variance, including its price and quantity variances.

Actual Cost				Standard cost for actual quantity purchased				Standard Cost
AQ	AP	Cost		AQ	SP	Cost		SQ	SP	Cost
1,339,000	$                                        6.20	$    8,301,800.00 (A)		1,339,000	$                   4.40	$ 5,891,600.00 (B)		1,620,000	$                   4.40	$ 7,128,000.00 (C)
Material Price Variance			$        2,410,200.00	Material Quantity Variance			$               1,236,400.00
			Unfavourable [A – B]				Favourable [C – B]
Material Price Variance				$                                                                                                                                 2,410,200.00				Unfavourable (1)
Material Quantity Variance				$                                                                                                                                   1,236,400.00				Favourable (2)
Material Cost Variance				$                                                                                                                                 1,173,800.00				Unfavourable (1 + 2)

• Requirement 2: Compute the direct labor cost variance, including its rate and efficiency variances

Actual Cost				Standard cost for actual quantity purchased				Standard Cost
AH	AR	Cost		AH	SR	Cost		SH	SR	Cost
265,000	$                                     12.00	$    3,180,000.00 [A]		265,000	$                14.00	$ 3,710,000.00 [B]		324,000	$                 14.00	$ 4,536,000.00 [C]
Labor Rate Variance			$              530,000.00 [B – A]	Labor Efficiency Variance			$                   826,000.00 [C – B]
			Favourable				Favourable
Labor Rate Variance				$                                                                                                                                       530,000.00				Favourable [1]
Labor Efficiency Variance				$                                                                                                                                       826,000.00				Favourable [2]
Labor Cost Variance				$                                                                                                                                   1,356,000.00				Favourable [ 1+2]

• Requirement 3

Actual Overhead:
Variable (given)	$                       2,736,900.00
Fixed (given)	$                       2,442,900.00
Total Actual Overhead (A)		$    5,179,800.00
Budgeted Overhead:
Variable [54,000 units x 6hr per unit x $ 8 per hour]	$                       2,592,000.00
Fixed [given at all level same]	$                       3,168,000.00
Total Budgeted Overhead (B)		$    5,760,000.00
Controllable Variance (B – A)		$        580,200.00 Favourable