Monday, 11 May 2015

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

Tuna Company set the following standard unit costs for its single product.    
      
  Direct materials (26 Ibs. @ $3 per Ib.) $ 78.00  
  Direct labor (6 hrs. @ $6 per hr.)   36.00  
  Factory overhead—variable (6 hrs. @ $4 per hr.)   24.00  
  Factory overhead—fixed (6 hrs. @ $5 per hr.)   30.00  
  

  Total standard cost $ 168.00  
  




 
The predetermined overhead rate is based on a planned operating volume of 70% of the productive capacity of 40,000 units per quarter. The following flexible budget information is available.
 
   Operating Levels
  
    60%   70%   80%
  Production in units   24,000       28,000       32,000    
  Standard direct labor hours   144,000       168,000       192,000    
  Budgeted overhead            
      Fixed factory overhead $ 840,000     $ 840,000     $ 840,000    
      Variable factory overhead $ 576,000     $ 672,000     $ 768,000    

 
During the current quarter, the company operated at 80% of capacity and produced 32,000 units of product; actual direct labor totaled 186,000 hours. Units produced were assigned the following standard costs:
 
      
  Direct materials (832,000 Ibs. @ $3 per Ib.) $ 2,496,000  
  Direct labor (192,000 hrs. @ $6 per hr.)   1,152,000  
  Factory overhead (192,000 hrs. @ $9 per hr.)   1,728,000  
  

  Total standard cost $ 5,376,000  
  




 
Actual costs incurred during the current quarter follow:
   
      
  Direct materials (827,000 Ibs. @ $3.10) $ 2,563,700  
  Direct labor (186,000 hrs. @ $5.75)   1,069,500  
  Fixed factory overhead costs   1,649,434  
  Variable factory overhead costs   1,544,151  
  

  Total actual costs $ 6,826,785  

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

Explanation:   Direct Materials Variances 
  Direct materials cost variances      
  Actual units at actual cost [827,000 lbs. @ $3.10] $ 2,563,700  
  Standard units at standard cost [832,000 lbs. @ $3.00]   2,496,000  
  

 
  Direct material cost variance $ 67,700  U
  



 

 
Direct Materials Price and Quantity Variances
Actual Cost
AQ × AP
  AQ × SP   Standard Cost
SQ × SP
827,000 × $3.10   827,000 × $3.00   832,000 × $3.00
      $2,563,700    $2,481,000   $2,496,000    
  Picture Picture
              $82,700 U
           (Price variance)
$15,000 F         
(Quantity variance)        
    Picture  
      $67,700 U
(Total materials variance)
   

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

  Direct Labor Variances
  Direct labor cost variances      
  Actual units at actual cost [186,000 hrs. @ $5.75] $ 1,069,500  
  Standard units at standard cost [192,000 hrs. @ $6.00]   1,152,000  
  

 
  Direct labor cost variance $ 82,500  F
  



 


Direct Labor Rate and Efficiency Variances
Actual Cost
AH × AR
  AH × SR   Standard Cost
SH × SR
186,000 × $5.75   186,000 × $6.00   192,000 × $6.00
      $1,069,500    $1,116,000   $1,152,000    
  Picture Picture
              $46,500 F
           (Rate variance)
$36,000 F         
(Efficiency variance)        
    Picture  
      $82,500 F
(Total labor variance)
 

3. Compute the overhead controllable and volume variances.

Explanation:   Overhead Variances 
  Controllable variance      
  Actual overhead [$1,649,434 + $1,544,151] $ 3,193,585  
  Applied overhead [from flexible budget, 80% capacity]   1,608,000  
  

 
  Controllable variance $ 1,585,585  U
   



 

 
  Fixed overhead volume variance      
  Budgeted fixed overhead [given, at 80% capacity] $ 840,000  
  Fixed overhead cost applied [192,000 hrs. @ $5]   960,000  
  

 
  Fixed overhead volume variance $ 120,000  F