Alternate Demo Problems Twenty-Three
Problem #1
XYZ Company manufactures tables. A standard cost card for the
manufacture of one table shows the following:
Standard Cost per Table:
Direct material: 4 sq. ft. @ $3/sq. ft. $12
Direct labor: 2 hours @ $8/hr 16
Total prime costs $28
In November, the company produced 1,000 tables. Actual production costs
and quantities were:
Direct material: 3,900 sq. ft. @ $3.10/sq. ft. $12
Direct labor: 2,300 hours @ $7.80/hr 16
Required:
Calculate the price and quantity variances for direct material and direct
labor.
Problem #2
Atlantic Company has the following monthly flexible budget information
based on an expectation of operating at 80% of the factory’s capacity or
10,000 units produced:
Operating Levels
70% 80% 90%
Budgeted output in units 8,000 10,000 12,000
Budgeted labor (standard hours) 16,000 20,000 24,000
Budgeted overhead
Variable overhead $ 48,000 $60,000 $ 72,000
Fixed overhead 40,000 40,000 40,000
Total overhead $ 88,000 $100,000 $112,000
During the current month, the company operated at 70% of capacity and
employees worked 16,500 hours and the flowing actual overhead costs
were incurred:
Variable overhead $ 47,300
Fixed overhead 41,000
Total overhead $88,300
Required:
1. Compute the predetermined overhead rate per direct labor hour for
variable overhead, fixed overhead, and total overhead.
2. Compute the variable overhead spending and efficiency variances.
3. Compute the fixed overhead spending and volume variance.
4. Solution: Problem #1
Materials Variances
AQ 3,900 Sq ft. AQ 3,900 Sq ft. SQ 4,000 Sq ft.
X AP X $3.10 X SP X 3.00 X SP X 3.00
$12,090 $11,700 $12,000
AQ 2,300 Hrs. AQ 2,300 Hrs. SQ 2,000 Hrs.
X AP X $7.80 X SP X 8.00 X SP X 8.00
$17,940 $18,400 $16,000
Material Variances:
Quantity Variance:
Standard units at standard price 4,000 ft @ $3.00 = $12,000
Actual units at standard price 3,900 ft @ $3.00 = 11,700
Variance (favorable) 100 ft @ $3.00 = $ 300
Direct material cost variance
(unfavorable) $ 90
Labor Variances:
Efficiency (Quantity) Variance
Actual hours at standard rate 2,300 hrs. @ $8.00 = $18,400
Standard hours at standard rate 2,000 hrs. @ $8.00 = 16,000
Variance (unfavorable) 300 hrs. @ $8.00 = $2,400
Solution: Problem #2
1. Compute the predetermined overhead rates
Overhead at operating level expected (80%) or 10,000 units
Variable Overhead Rate:
Total Overhead Rate:
Expected Total Overhead $100,000 = $ 5.00 per DLH
Expected Direct Labor Hours 20,000
2. Variable Overhead Variance Computations
Actual Variable Applied Variable
Overhead Overhead
3. Fixed Overhead Variance Computations
Actual Fixed Applied Fixed
Overhead Overhead