Question

Flandro Company uses a standard cost system and sets predetermined overhead rates on the basis of direct labor-hours. The following data are taken from the company’s budget for the current year:

Denominator activity (direct labor-hours)	17,000
Variable manufacturing overhead cost	$ 57,800
Fixed manufacturing overhead cost	$ 161,500

The standard cost card for the company’s only product is given below:

Direct materials, 4 yards at $2.20 per yard	$ 8.80
Direct labor, 2 hour at $8.60 per hour	17.20
Manufacturing overhead, 150% of direct labor cost	25.80
Standard cost per unit	$ 51.80

During the year, the company produced 8,840 units of product and incurred the following costs:

Materials purchased, 56,100 yards at $2.10 per yard	$	117,810
Materials used in production (in yards)		36,450
Direct labor cost incurred, 18,000 hours at $8.20 per hour	$	147,600
Variable manufacturing overhead cost incurred	$	57,400
Fixed manufacturing overhead cost incurred	$	117,000

Required:
1.	Redo the standard cost card in a clearer, more usable format by detailing the variable and fixed overhead cost elements. (Round your answers to 2 decimal places.)

      

2.	Prepare an analysis of the variances for direct materials and direct labor for the year. (Indicate the effect of each variance by selecting "F" for favorable, "U" for unfavorable, and "None" for no effect (i.e., zero variance.).)

      

Answer 1

Standard cost card
Direct materials, 4 yards at $2.20 per yard	$8.80
Direct labor, 2 DLH at $8.60 per DLH	$17.20
Variable manufacturing overhead, 2 DLH at $3.40 per DLH (57800/17000=$3.40)	$6.80
Fixed manufacturing overhead, 2 DLH at $9.50 per DLH (161500/17000=$9.50)	$19.00
Standard cost per unit	$51.80

Materials variances:

Materials price variance = AQ (AP – SP)

56100 yards ($2.10 – $2.20) = $5610 F

Materials quantity variance = SP (AQ – SQ)

$2.20(36450 – (8840 X 4)) = $2398 UF

Labor variances:

Labor rate variance = AH (AR – SR)

18000 DLHs ($8.20-$8.60) = $7200F

Labor efficiency variance = SR (AH – SH)

$8.60 (18000 – (2 HourX 8840) = $2752 U

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