Question

Antuan Company set the following standard costs for one unit of its product.

Direct materials (3.0 Ibs. @ $5.00 per Ib.)	$	15.00
Direct labor (1.9 hrs. @ $12.00 per hr.)		22.80
Overhead (1.9 hrs. @ $18.50 per hr.)		35.15
Total standard cost	$	72.95

The predetermined overhead rate ($18.50 per direct labor hour) is based on an expected volume of 75% of the factory’s capacity of 20,000 units per month. Following are the company’s budgeted overhead costs per month at the 75% capacity level.

Overhead Budget (75% Capacity)
Variable overhead costs
Indirect materials	$	15,000
Indirect labor		75,000
Power		15,000
Repairs and maintenance		30,000
Total variable overhead costs				$	135,000
Fixed overhead costs
Depreciation—Building		24,000
Depreciation—Machinery		72,000
Taxes and insurance		17,000
Supervision		279,250
Total fixed overhead costs					392,250
Total overhead costs				$	527,250

The company incurred the following actual costs when it operated at 75% of capacity in October.

Direct materials (46,500 Ibs. @ $5.20 per lb.)				$	241,800
Direct labor (22,000 hrs. @ $12.10 per hr.)					266,200
Overhead costs
Indirect materials	$	41,700
Indirect labor		176,850
Power		17,250
Repairs and maintenance		34,500
Depreciation—Building		24,000
Depreciation—Machinery		97,200
Taxes and insurance		15,300
Supervision		279,250			686,050
Total costs				$	1,194,050

rev: 03_28_2018_QC_CS-122864

4. Compute the direct labor cost variance, including its rate and efficiency variances.

AH = Actual Hours
SH = Standard Hours
AR = Actual Rate
SR = Standard Rate

Answer 1

Solution 4:

Standard hours of labor for actual production = 15000 * 1.90 = 28500 hours

Actual hours of labor = 22000 hours

Standard rate of labor = $12 per hour

Actual rate of labor = $12.10 per hour

Direct labor rate variance = (SR - AR) * AH = ($12 - $12.10) * 22000 = $2,200 U

Direct labor efficiency variance = (SH - AH) * SR = (28500 - 22000) * $12 = $78,000 F

Direct labor cost variance = Direct labor rate variance + direct labor efficiency variance = $2,200 U + $78,000 F = $75,800 F