Response to the following problem:
Browser Products operates a small plant in New Mexico that produces dog food in batches of 1,000 pounds. The product sells for $3.00 per pound.
Standard costs for 2015 are:
Standard direct labor cost = $ 15 per hour
Standard direct labor hours per batch = 8 hours
Standard cost of material A = $0.20 per pound.
Standard pounds of material A per batch = 800 pounds
Standard cost of material B = 0.40 per pound
Standard pounds of material B per batch = 200 pounds
Fixed overhead costs per batch = $ 400
At the start of 2015, the company estimated monthly production and sales of 40 batches. The company estimated that all overhead costs were fixed and amounted to $ 16,000 per month.
During the month of June 2015 (typically a somewhat slow month) 30 batches were produced (not an unusual level of production for this month). The following costs were incurred:
Direct labor costs were $4,800 for 300 hours
24,500 pounds of material A costing $ 4,655 were purchased and used.
5,900 pounds of material B costing $2,419 were purchased and used.
Fixed overhead of $ 15,500 were incurred.
Required:
a. Calculate variances of material, labor and overhead.
b. Prepare a summary of the variances. Does the unfavourable overhead volume variance suggest that overhead costs are out of control.