Select your language

Suggested languages for you:
Log In Start studying!
Answers without the blur. Just sign up for free and you're in → Illustration

Q4PSA

Expert-verified
Financial & Managerial Accounting
Found in: Page 978
Financial & Managerial Accounting

Financial & Managerial Accounting

Book edition 7th
Author(s) John J Wild, Ken W. Shaw, Barbara Chiappetta
Pages 1096 pages
ISBN 9781259726705

Short Answer

Trico Company set the following standard unit costs for its single product.

Direct materials (30 Ibs. @ $4 per Ib.)

$120

Direct labor (5 hrs. @ $14 per hr.)

70

Factory overhead—variable (5 hrs. @ $8 per hr.)

40

Factory overhead—fixed (5 hrs. @ $10 per hr.)

50

Total standard cost

$280

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 Level
70%80%90%

Production in units

42,000

48,000

54,000

Standard direct labor hours

210,000

240,000

270,000

Budgeted overhead

Fixed factory overhead

$2,400,000

$2,400,000

$2,400,000

Variable factory overhead

$1,680,000

$1,920,000

$2,160,000

During the current quarter, the company operated at 90% of capacity and produced 54,000 units of product; actual direct labor totaled 265,000 hours. Units produced were assigned the following standard costs.

Direct materials (1,620,000 Ibs. @ $4 per Ib.)

$6,480,000

Direct labor (270,000 hrs. @ $14 per hr.)

3,780,000

Factory overhead (270,000 hrs. @ $18 per hr.)

4,860,000

Total standard cost

$15,120,000

Actual costs incurred during the current quarter follow.

Direct materials (1,615,000 Ibs. @ $4.10 per lb.)

$6,621,500

Direct labor (265,000 hrs. @ $13.75 per hr.)

3,643,750

Fixed factory overhead costs

2,350,000

Variable factory overhead costs

2,200,000

Total actual costs

$14,815,250

Required

1. Compute the direct materials cost variance, including its price and quantity variances.

2. Compute the direct labor cost variance, including its rate and efficiency variances.

3. Compute the overhead controllable and volume variances.

  1. The direct material price variance is unfavorable.

The direct material quantity variance is favorable.

  1. The direct labor cost and efficiency variances are favorable.

  2. The overhead controllable and volume variances are favorable.

See the step by step solution

Step by Step Solution

Step 1: Meaning of Standard Costing

It is a costing technique that compares the standards cost and revenue with the actuals to minimize and control cost and maximize profits.

Step 2: Computation of direct materials cost variance

Step 3: Computation of direct labor cost variance

Step 4: Computation of overhead controllable and volume variances

Controllable Variance

Actual overhead (2,350,000+2,200,000)

4,550,000

Budgeted overhead (2,400,000+2,160,000)

4,560,000

Controllable variance

10,000

(Favorable)

Fixed Overhead Volume Variance

Budgeted fixed overhead

2,400,000

Fixed overhead cost applied (270,000*10)

2,700,000

Fixed overhead volume variance

300,000

(Favorable)

Most popular questions for Business-studies Textbooks

Icon

Want to see more solutions like these?

Sign up for free to discover our expert answers
Get Started - It’s free

Recommended explanations on Business-studies Textbooks

94% of StudySmarter users get better grades.

Sign up for free
94% of StudySmarter users get better grades.