Problem - Bowser Products operates a small plant in New Mexico that produces dog food in batches of 1,500 pounds. The product sells for $6 per pound. Standard cost for 2015 are:
Standard direct labor cost = $15 per hour
Standard direct labor hours per batch = 10 hours
Standard price of material A = $0.35 per pound
Standard pounds of material A per batch = 800 pounds
Standard price for material B = $0.55 per pound
Standard pounds of material B per batch = 250 pounds
Fixed overhead cost per batch = $500
At the start of 2015, 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 2015 (typically a slow month), 42 batches were produced (not an unusual level of production for June). The following costs were incurred:
Direct labor cost were $7,800 for 460 hours.
37,500 pounds of material A costing $8,500 were purchased and used.
12,000 pounds of material B costing $5,600 were purchased and used.
Fixed overhead of 423,000 was incurred.
Question a) Calculate variances for material, labor, and overhead.
Question b) Prepare a summary of the variances. Does the unfavorable overhead volume variance suggest that overhead cost are out of control?