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Hillbilly Inc. manufactures beautiful handmade rocking chairs with the following standard costs: Direct Materials 30 bd...

Hillbilly Inc. manufactures beautiful handmade rocking chairs with the following standard costs:

Direct Materials 30 bd ft. @ $0.70 per bd. ft.........$21

Direct labor 6 hours @ $5.00 per hour..................30

Factory overhead - applied at 2/3 of labor costs....20

Total standard cost per unit of output......................71

Standards are based on normal monthly production of 3600 direct labor hours for 600 units of output. The following information pertains to October activities:

Units produced in October..........................700 units

Direct materials purchased 22,500 bd. ft. @ .67 per bd. ft......$15,075

Direct materials used.........21,500

Direct labor 4100 hours @ $4.90 per hour...........20,090

Actual factory overhead..........$15,250

Prepare the following schedules for October, indicating whether each variance is favorable or unfavorable.

1. Labor rate variance

2. Labor efficiency variance

3. Material price variance

4. Material quantity variance

5. Total manufacturing overhead variance

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Answer #1

Solution :

Labor rate variance = (SR - AR) * AH = ($5 - $4.90) * 4100 = $410 Favorable

Labor efficiency variance = (SH - AH) * SR = (700*6 - 4100) * $5 = $500 Favorable

Material price variance = (SP - AP) * AQ purchased = (0.70 - 0.67) * 22500 = $675 Favorable

Material quantity variance = (SQ - AQ) * SP = (700*30 - 21500) * $0.70 = $350 Unfavorable

Total manufacturing overhead variance = Overhead applied - Actual overhead

= (700*$30*2/3) - $15,250

= $1,250 Unfavorable

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