Question

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

Denominator activity (direct labor-hours)		16,000
Variable manufacturing overhead cost	$	55,200
Fixed manufacturing overhead cost	$	146,400

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

Inputs	(1) Standard Quantity or Hours	(2) Standard Price or Rate			Standard Cost (1) × (2)
Direct materials	4 yards	$	2.25	per yard	$	9.00
Direct labor	2 hours	$	9.00	per hour		18.00
Manufacturing overhead	2 hours	$	12.60	per hour		25.20
Total standard cost per unit					$	52.20

During the year, the company produced 8,320 units of product and incurred the following actual results:

Materials purchased, 52,800 yards at $2.15 per yard	$	113,520
Materials used in production (in yards)		34,300
Direct labor cost incurred, 17,000 hours at $8.25 per hour	$	140,250
Variable manufacturing overhead cost incurred	$	55,100
Fixed manufacturing overhead cost incurred	$	111,350

Required:

1. Create a new standard cost card that separates the variable manufacturing overhead per unit and the fixed manufacturing overhead per unit.

2. Compute the materials price and quantity variances. Also, compute the labor rate and efficiency variances.

3. Compute the variable overhead rate and efficiency variances. Also, compute the fixed overhead budget and volume variances.

Answer 1

1)

	Standard Quantity	Standard Price	Standard Cost/Unit
Direct materials (pounds)	4.00	2.25	9.00
Direct labor (direct labor hours)	2.00	9.00	18.00
Variable overhead	2.00	3.45	6.90
Fixed Overhead	2.00	9.15	18.30
Standard cost per unit			52.20

2) Direct Material Price Variance = (2.15 - 2.25)34,300

=3,430 (Favorable)

Direct Material Quantity Variance = 2.25 (34,300 - 33,280)

=2,295 (Unfavorable)

Direct Labor Rate Variance = (8.25 - 9)17,000

=12,750 (Favorable)

Direct Labor Efficiency variance = (17,000 - 16,640)9

=3,240 (Unfavorable)

3) variable overhead rate Variance = (3.45 - 3.24)17000 = 3,550 (Favorable)

variable overhead Efficiency Variance = (17,000 -16,640)3.45 = 1,242 (Unfavorable)

Fixed overhead Budget Variance = (9.15 x 16,640) - (146,400)

=5856 (Favorable)

Fixed Overhead Budget Variance = 146,400 - 111,350 = 35,050 Favorable