Question: Kwikeze Company set the following standard costs for one unit of its product.
Direct materials (4.5 Ibs. @ $6 per Ib.) . . . . . . . $27.00
Direct labor (1.5 hrs. @ $12 per hr.) . . . . . . . . . 18.00
Overhead (1.5 hrs. @ $16 per hr.) . . . . . . . . . . . 24.00
Total standard cost . . . . . . . . . . . . . . . . . . . . . . . . $69.00
The predetermined overhead rate ($16 per direct labor hour) is based on an expected volume of 75% of the factory's capacity of 20,000 units per month. Following are the company's budgeted overhead costs per month at the 75% level.
The company incurred the following actual costs when it operated at 75% of capacity in October.
Required: 1. Examine the monthly overhead budget to (a) determine the costs per unit for each variable overhead item and its total per unit costs, and (b) identify the total fixed costs per month.
2. Prepare flexible overhead budgets for October showing the amounts of each variable and fixed cost at the 65%, 75%, and 85% capacity levels.
3. Compute the direct materials cost variance, including its price and quantity variances.
4. Compute the direct labor cost variance, including its rate and efficiency variances.
5. Prepare a detailed overhead variance report that shows the variances for individual items of overhead.