## 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 \$82,700 U            (Price variance) \$15,000 F          (Quantity variance) \$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 \$46,500 F            (Rate variance) \$36,000 F          (Efficiency variance) \$82,500 F (Total labor variance)

3. Compute the overhead controllable and volume variances.