Question

Kingbird Corporation manufactures a single product. The standard cost per unit of product is shown below.

Direct materials—1 pound plastic at $6.00 per pound		$ 6.00
Direct labor—1.5 hours at $12.20 per hour		18.30
Variable manufacturing overhead		9.00
Fixed manufacturing overhead		15.00
Total standard cost per unit		$48.30

The predetermined manufacturing overhead rate is $16.00 per direct labor hour ($24.00 ÷ 1.5). It was computed from a master manufacturing overhead budget based on normal production of 8,700 direct labor hours (5,800 units) for the month. The master budget showed total variable costs of $52,200 ($6.00 per hour) and total fixed overhead costs of $87,000 ($10.00 per hour). Actual costs for October in producing 4,300 units were as follows.

Direct materials (4,500 pounds)		$ 27,900
Direct labor (6,250 hours)		77,500
Variable overhead		78,430
Fixed overhead		26,670
Total manufacturing costs		$210,500

The purchasing department buys the quantities of raw materials that are expected to be used in production each month. Raw materials inventories, therefore, can be ignored.

(a) Compute all of the materials and labor variances. Total materials variance Materials price variance Materials quantity variance Total labor variance 0 Labor price variance 0 Labor quantity variance 0 (b) Compute the total overhead variance. Total overhead variance

Answer 1

Solution a:

Direct Material Cost Variance
Actual Cost					Standard cost for actual quantity					Standard Cost
AQ *	AP =				AQ *	SP =				SQ *	SP =
4500	$6.20	$27,900.00			4500	$6.00	$27,000.00			4300	$6.00	$25,800.00
			$900.00	U				$1,200.00	U
			Direct Material Price Variance					Direct Material Qty variance
Direct material price variance					$900.00	U
Direct material quantity variance					$1,200.00	U
Direct material cost variance					$2,100.00	U

Direct Labor Cost Variance
Actual Cost					Standard cost for actual quantity					Standard Cost
AH *	AR =				AH *	SR =				SH *	SR =
6250	$12.40	$77,500.00			6250	$12.20	$76,250.00			6450	$12.20	$78,690.00
			$1,250.00	U				$2,440.00	F
			Direct Labor rate Variance					Direct Labor Efficiency Variance
Direct Labor Rate variance					$1,250.00	U
Direct Labor Efficiency variance					$2,440.00	F
Direct labor cost variance					$1,190.00	F

Solution b:

Total overhead variance = Total overhead applied - actual overhead

= (4300*1.50*$16) - ($78,430 + $26,670)

= $1,900 U