Flandro Company uses a standard cost system and sets its predetermined overhead rate on the basis of direct labor-hours. The following data are taken from the company’s planning budget for the current year:

Flandro Company uses a standard cost system and sets its predetermined overhead rate on the basis of direct labor-hours. The following data are taken from the company’s planning budget for the current year:

Denominator activity (direct labor-hours)		15,000
Variable manufacturing overhead cost	$	44,250
Fixed manufacturing overhead cost	$	126,750

The standard cost card for the company’s only product is given below:

Inputs	(1) Standard Quantity or Hours	(2) Standard Price or Rate			Standard Cost (1) × (2)
Direct materials	4 yards	$	1.75	per yard	$	7.00
Direct labor	2 hours	$	9.50	per hour		19.00
Manufacturing overhead	2 hours	$	11.40	per hour		22.80
Total standard cost per unit					$	48.80

During the year, the company produced 7,800 units of product and incurred the following actual results:

Materials purchased, 49,500 yards at $1.70 per yard	$	84,150
Materials used in production (in yards)		32,200
Direct labor cost incurred, 16,000 hours at $7.85 per hour	$	125,600
Variable manufacturing overhead cost incurred	$	44,550
Fixed manufacturing overhead cost incurred	$	96,800

Required:

1. Create a new standard cost card that separates the variable manufacturing overhead per unit and the fixed manufacturing overhead per unit.

2. Compute the materials price and quantity variances. Also, compute the labor rate and efficiency variances.

3. Compute the variable overhead rate and efficiency variances. Also, compute the fixed overhead budget and volume variances.

 

Explanation

1.

Variable manufacturing overhead: $44,250 ÷ 15,000 DLHs = $2.95 per DLH.

Fixed manufacturing overhead: $126,750 ÷ 15,000 DLHs = $8.45 per DLH.

2.

Materials variances:

Materials price variance	=	AQ (AP − SP)
49,500 yards ($1.70 per yard − $1.75 per yard)	=	$2,475 F

Materials quantity variance	=	SP (AQ − SQ)
$1.75 per yard (32,200 yards − 31,200 yards*)	=	$1,750 U

*7,800 units × 4 yards per unit = 31,200 yards

Labor variances:

Labor rate variance	=	AH (AR − SR)
16,000 DLHs ($7.85 per DLH − $9.50 per DLH)	=	$26,400 F

Labor efficiency variance	=	SR (AH − SH)
$9.50 per DLH (16,000 DLHs − 15,600 DLHs*)	=	$3,800 U

*7,800 units × 2 DLH per unit = 15,600 DLHs

3.

Variable overhead variances:

Actual DLHs of Input, at the Actual Rate (AH × AR)			Actual DLHs of Input, at the Standard Rate (AH × SR)			Standard DLHs Allowed for Output, at the Standard Rate (SH × SR)
$44,550			16,000 DLHs × $2.95 per DLH = $47,200			15,600 DLHs × $2.95 per DLH = $46,020
	Variable overhead rate variance, $2,650 F			Variable overhead efficiency variance, $1,180 U
	Spending Variance, $1,470 F

Fixed overhead variances:

Actual Fixed Overhead			Budgeted Fixed Overhead			Fixed Overhead Applied to Work in Process
$96,800			$126,750			15,600 DLHs × $8.45 per DLH = $131,820
	Budget Variance, $29,950 F			Volume Variance, $5,070 F

Thanks