Hayes Chemical Company produces a chemical used in dry cleaning.Its accounting system uses standard costs.The standards per .5-gallon can of chemical call for 1.20 gallons of material and 1.50 hours of labor. (1.20 gallons of material are needed to produce a .5-gallon can of product due to evaporation.) The standard cost per gallon of material is $6.00.The standard cost per hour for labor is $9.00.Overhead is applied at the rate of $7.75 per can.Expected production is 20,000 cans with ?xed overhead per year of $55,000 and variable overhead of $5.00 per unit (a .5-gallon can).
During 2015,23,000 cans were produced;35,000 gallons of material were purchased at a cost of $250,000; 30,000 gallons of material were used in production. The cost of direct labor incurred in 2015 was $290,000 based on an average actual wage rate of $8.25 per hour.Actual overhead for 2015 was $220,000.
Required
a. Determine the standard cost per unit.
b. Calculate material, labor, and overhead variances.
c. List a possible cause for each variance.