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.

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