17. Powerhorse, Inc., manufactures steel hitches for horse trailers. The company‘s direct labor rates have
been set by the terms of the current labor contract. Direct labor rate standards have been assigned for
each job classification. In July 20xx, a young apprentice was being trained during regular working
hours to become a machine operator on one of the turret lathes. A timekeeper determined that the
apprentice had spent a total of 48 hours as a novice machine operator in July. Standard time for the
same work output is 34 hours. The apprentice earned $6.80 per hour in July. The standard direct labor
rate for machine operators working on turret lathes is $9.50 per hour.
a. From the data provided, determine the direct labor efficiency variance and the direct labor rate
variance that resulted from the temporary substitution of the apprentice for the regular machine
operator. (Note that, according to the labor contract, the apprentice is not entitled to the same rate as a
regular machine operator during the training period.)
b. Did the company benefit financially from the situation? Why or why not? (Show calculations.)
18. Fredman Company has a standard costing system and keeps all its costs up to date. The company’s
main product is copper wind chimes, which are made in a single department. The standard variable
costs for one wind chime (unit) are as follows:
Direct materials (3 yards at $12.50 per yard)
$37.50
Direct labor (2 hours at $9.00 per hour)
18.00
Variable overhead (2 hours @ $5.00 per direct labor hour)
10.00
Standard variable cost per unit
$65.50
The company’s normal capacity is 10,000 direct labor hours. Its budgeted fixed overhead costs for the
year were $44,000. During the year, it produced and sold 4,900 wind chimes and it purchased 15,000
yards of direct materials; the purchase cost was $12.40 per yard. The average labor rate was $9.10 per
hour, and 10,050 direct labor hours were worked. The company’s actual variable overhead costs for the
year were $48,900, and its fixed costs were $45,000.
Using the data given, compute the following using formulas or diagram form:
= 14 (U) $9.50
= $2.70 (F) 48 hours
Standard cost for regular machine operator:
Actual cost of apprentice machine operator:
Total loss
1. Direct materials cost variances:
a. Direct materials price variance
b. Direct materials quantity variance
c. Total direct materials cost variance
2. Direct labor cost variances:
a. Direct labor rate variance
b. Direct labor efficiency variance
c. Total direct labor cost variance
3. Variable overhead variances:
a. Variable overhead spending variance
b. Variable overhead efficiency variance
c. Total variable overhead variance
4. Fixed overhead variances:
a. Fixed overhead budget variance
b. Fixed overhead volume variance
c. Total fixed overhead variance
ANS:
2. Direct labor cost variances:
3. Variable overhead variances:
4. Fixed overhead variances:
19. Krane Company has a standard costing system and keeps all its costs up to date. The company’s main
product is beach towels which are made in a single department. The standard variable costs for one
beach towel (unit) are as follows:
Direct materials (3 yards at $1.00 per yard)
$ 3.00
Direct labor (1/2 hour at $9.00 per hour)
4.50
Variable overhead (1/2 hour @ $5.00 per direct labor hour)
2.50
Standard variable cost per unit
$10.00
The company’s normal capacity is 10,000 direct labor hours. Its budgeted fixed overhead costs for the
year were $24,000. During the year, it produced and sold 22,000 beach towels and it purchased 66,250
yards of direct materials; the purchase cost was $0.99 per yard. The average labor rate was $9.10 per
hour, and 10,900 direct labor hours were worked. The company’s actual variable overhead costs for the
year were $55,100, and its fixed costs were $24,500.
Using the data given, compute the following using formulas or diagram form:
1. Direct materials cost variances:
a. Direct materials price variance
b. Direct materials quantity variance
Fixed overhead budget variance
$ 1,000 (U)
$4.40)*
Fixed overhead volume variance
$ 880 (U)
*Standard fixed overhead = $44,000 / 10,000 hr = $4.40
$1,000 (U)
$1,880 (U)
c. Total direct materials cost variance
2. Direct labor cost variances:
a. Direct labor rate variance
b. Direct labor efficiency variance
c. Total direct labor cost variance
3. Variable overhead variances:
a. Variable overhead spending variance
b. Variable overhead efficiency variance
c. Total variable overhead variance
4. Fixed overhead variances:
a. Fixed overhead budget variance
b. Fixed overhead volume variance
c. Total fixed overhead variance
ANS:
