Question

Problem 3: Vinbit Manufactured by Starr Company

The Starr Company has established a standard cost system for the manufacture of a single consumer product, which is branded under the name Vinbit. The standard costs of producing one Vinbit are shown below:

Standard Cost Card:

Direct Materials: 20 pounds @ $.30                                        $6.00

Direct Labor: 3 hours @ $15.00                                             $45.00

At the beginning of the year, Starr Company established a monthly flexible overhead budget as follows:

Flexible Overhead Budget:

Variable Charges - $.60 per direct labor hour

Fixed Charges - $5,000.00 per month

Budgeted Volume – 10,000 direct labor hours     

The costs of operations to produce 4,500 Vinbits during May are stated below (there were no initial inventories):

            Actual Costs:

            Materials purchased: 110,000 pounds @ $.31                   $34,100

            Materials used: 105,000 pounds

            Direct Labor: 13,750 hours @ $15.20                                 $209,000

            Variable overhead incurred                                                                $8,500

            Fixed overhead incurred                                                          $6,000

                       

Required:

Starr Company’s overhead is applied through the use of direct labor hours as the single cost driver. Utilizing this cost driver, what is the amount of budgeted volume, standard volume and actual volume?

Prepare a calculation of the overhead efficiency, volume and spending variances for the month of May.

Answer 1

Computation of Budgeted Volume, Actual Volume, Standard Volume

Budgeted Volume=10000 Direct Labour Hour/3Direct Labour Hour per Unit = 3333 unit

Standard Volume=13750/3=4583 unit

Actual Volume=4500 unit

Computation of Variable Overhead Efficiency, Spending , Volume Variance

Variable Overhead Efficiency Variance=Standard Overhead Rate X ( Actual Hours- Standanrd Hours)

=$0.60(13750-(4500X3))=$150 UnFavourable

Variable Overhead Spending Variance= Actual Hour Worked X( Actual Overhead Rate- Standard Overhead Rate)

=13750( $ 8500/13750-$0.60)= $250 UnFavourable

Factory Overhead Volume Variance= Standard Hour X Standard Rate - Actual Fixed Overhead Budgeted

=(15000X0.40)-$6000=0