PROBLEM - Comprehensive Variance Problem
Bowser Products operates a small plant in New Mexico that produces dog food in batches of 1,200 pounds. The product sells for $4 per pound. Standard costs for 2012 are:
Standard direct labor cost = $ 16 per hour
Standard direct labor hours per batch = 9 hours
Standard price of material A = $0.25 per pound
Standard pounds of material A per batch = 900 pounds
Standard price of material B = $0.45 per pound
Standard pounds of material B per batch = 300 pounds
Fixed overhead cost per batch = $500
At the start of 2012, the company estimated monthly production and sales of 50 batches.
The company estimated that all overhead costs were fixed and amounted to $25,000 per month.
During the month of June 2012 (typically a somewhat slow month), 40 batches were produced (not an unusual level of production for June). The following costs were incurred:
Direct labor costs were $6,800 for 400 hours.
36,500 pounds of material A costing $7.300 were purchased and used.
12,000 pounds of material B costing $5,520 were purchased and used.
Fixed overhead of $24,400 was incurred.
Required -
a. Calculate variances for material, labor, and overhead.
b. Prepare a summary of the variances. Does the unfavorable overhead volume variance suggest that overhead costs are out of control?