Problem - Omaha Company manufactures special electrical equipment and parts. The company uses a standard cost system with separate standards established for each product.
The transformer department manufactures a special transformer. This department measures production volume in terms of direct labor hours (DL hours) and allocates both variable and fixed overhead on the basis of direct labor hours.
The standard and budget cost information of a transformer at its DeCatur plant is as follows:
Direct materials (Iron) - 5 sheets x $12 ea.
Direct labor - 4 hours x $27 / hr.
Variable overhead - $120,000
Fixed overhead - $ 80,000
Units - 1,000
Direct material purchase variances are evaluated separately from direct material usage variances.
During October the plant produced 800 transformers. A work stoppage occurred during labor contract negotiations causing the department to schedule overtime in an attempt to reach expected production levels.
The following costs were incurred in October:
Direct Materials:
- Iron - Purchased 5,000 sheets at $12.35/sheet and used 3,900 sheets
Direct Labor:
- Wages - $102,600 @ $28.50 per hour
Overhead:
- Variable - Utilities $30,000, Indirect labor $20,000, Maintenance $ 30,000, Inspections $30,000 Supplies $16,000
- Fixed - Lease $40,000, depreciation $30,000, taxes and insurance $18,000
Required: Complete each of the following questions. For problems: show your work, provide labels and descriptions of amounts, provide fav/unfav designations and be organized in your work and clearly show your solution to the question.
For October:
1. Calculate the direct materials purchase price variance.
2. Calculate the direct materials usage variance.
3. Calculate the direct labor price variance.
4. Calculate the direct labor efficiency variance.
5. Calculate the variable overhead spending variance.
6. Calculate the variable overhead efficiency variance.
7. Calculate the fixed overhead spending variance.
8. Calculate the fixed overhead volume variance.