Standard costing involves computation of variances.
Hayes Chemical Company produces a chemical used in dry cleaning. Its accounting system uses standard costs. The standards per half gallon can of chemical call for .75 gallons of material and 3.0 hours of labor. (.75 gallons of material are needed to produce a .5 gallon can of product due to evaporation.) The standard cost per gallon of material is $5.25. The standard cost per hour for labor is $11.00. Overhead is applied at the rate of $9.75 per can. Expected production is 17,000 cans with fixed overhead per year of $30,000, and variable overhead of $8.00 per unit (a half gallon can).
During 2009, 18,000 cans were produced; 16,000 gallons of material were purchased at a cost of $109,600; 14,400 gallons of material were used in production. The cost of direct labor incurred in 2009 was $608,220 based on an average actual wage rate of $10.90 per hour. Actual overhead for 2009 was $175,600.
Required
a. Determine the standard cost per unit.
b. Calculate material, labor, and overhead variances.
c. List a possible cause for each variance.