Problem:
Tuna Company set the following standard unit costs for its single product.
Direct materials (25 lbs. @ $4 per lb) $100.00
Direct labor (6 hrs. @8 per hr.) 48.00
Factory overhead : variable (6 hrs. @ $5 per hr) 30.00
Factory overhead: fixed (6 hrs. @7 per hr) 42.00
Total standard costâ $220.00
The predetermined overhead rate is based on a planned operating volume of 80% of the productive capacity of 60,000 units per quarter. The following flexible budget information is available.
Operating Levels
70% 80% 90%
Production in units 42,000 48,000 54,000
Standard direct labor hours 252,000 288,000 324,000
Budgeted overhead
Flexible factory overhead $2,016,000 $2,016,000 $2,016,000
Variable factory overhead $1,260,000 $1,440,000 $1,620,000
During the current quarter, the company operated at 70% of capacity and produced 42,000 units of product; actual direct labor totaled 250,000 hours. Unit produced were assigned the following standard costs:
Direct materials (1,050,000 lbs. @ $4 per lb) $4,200,000
Direct labor (252,000 hrs. @8 per hr) 2,016,000
Factory overhead (252,000 hrs. @ $12 per hr) 3,024,000
Total standard cost $9,240,000
Actual costs incurred during the current quarter follows:
Direct materials (1,000,000 lbs. @ $4.25) $4,250,000
Direct labor (250,000 hrs. @ 7.75) 1,937,500
Fixed factory overhead costs 1,960,000
Variable factory overhead costs 1,200,000
Total actual costs $9,347,500
Required to do:
Problem 1. Compute the direct materials cost variance, including its price and quantity variances.
Problem 2. Compute the direct labor variance, including its rate and efficiency variances.