Question

# Flandro Company uses a standard cost system and sets its predetermined overhead rate on the basis...

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

 Denominator activity (direct labor-hours) 10,000 Variable manufacturing overhead cost \$ 37,500 Fixed manufacturing overhead cost \$ 64,500

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

 Inputs (1) Standard Quantity or Hours (2) Standard Price or Rate Standard Cost (1) × (2) Direct materials 4 yards \$ 2.55 per yard \$ 10.20 Direct labor 2 hours \$ 8.50 per hour 17.00 Manufacturing overhead 2 hours \$ 10.20 per hour 20.40 Total standard cost per unit \$ 47.60

During the year, the company produced 5,200 units of product and incurred the following actual results:

 Materials purchased, 33,000 yards at \$2.45 per yard \$ 80,850 Materials used in production (in yards) 21,450 Direct labor cost incurred, 11,000 hours at \$8.55 per hour \$ 94,050 Variable manufacturing overhead cost incurred \$ 38,950 Fixed manufacturing overhead cost incurred \$ 75,350

Required:

1. Create a new standard cost card that separates the variable manufacturing overhead per unit and the fixed manufacturing overhead per unit.

2. Compute the materials price and quantity variances. Also, compute the labor rate and efficiency variances.

3. Compute the variable overhead rate and efficiency variances. Also, compute the fixed overhead budget and volume variances.

Question 1

 1 2 3= 1*2 Particulars Standard Quantity Standard Rate / Price Standard Cost Direct Materials 4 Yards \$ 2.55 Per Yard \$ 10.2 Direct Labour 2 Hours \$ 8.50 Per Hour \$ 17 Variable Manufacturing Overhead 2 Hours \$ 3.75 per Hour \$ 7.50 Fixed Manufacturing Overhead 2 Hours \$ 6.45 per Hour \$ 12.90 Total \$ 47.60

Variable Manufacturing Rate = Variable Manufacturing Overhead / Total Direct Labour Hours

= 37,500 / 10,000 Hours = \$ 3.75 per DLH

Fixed Manufacturing Overhead Rate = Fixed Manufacturing Overhead / Total Direct Labour Hours

= 64,500 / 10,000 = \$ 6.45 per DLH

Question 1

Direct Materials Price Variance = (Standard Rate per Yard - Actual Rate per Yard) * Actual Quantity of Material Used

Standard Rate per Yard = \$ 2.55

Actual Rate per Yard = \$ 2.45

Actual Quantity of Material Used = 21,450

Direct Materials Price Variance = (2.55 - 2.45) * 21,450

Direct Materials Price Variance = \$ 2145 Favorable Variance

Direct Materials Quantity Variance = (Standard Quantity of Material for Actual Output - Actual Quantity Used) * Standard Rate per Yard

Standard Rate per Yard = \$ 2.55

Actual Quantity Used = 21,450

Standard Quantity For Actual Output = 5,200 Units * 4 Yards per Unit = 20,800 Yards

Direct Materials Quantity Variance = (20,800 - 21,450) * 2.55

Direct Materials Quantity Variance = (\$ 1657.5) Unfavorable Variance

Direct Labour Rate Variance = (Standard Labour Rate per Hour - Actual Labour Rate per Hour) * Actual Hours Worked

Standard Labour Rate per Hour = \$ 8.50

Actual Labour Rate per Hour = \$ 8.55

Actual Hours Worked = 11,000 Hours

Direct Labour. Rate Variance = (8.50 - 8.55) * 11,000

Direct Labour Rate Variance = (\$ 550) Unfavorable Variance

Direct Labour Efficiency Variance = (Standard Labour Hours for Actual Output - Actual Hours Worked) * Standard Labour Rate per Hour

Standard Labour Rate per Hour = \$ 8.50

Actual Hours Worked = 11,000

Standard Labour Hours for Actual Output = 5,200 Units * 2 Hours per Unit = 10,400

Direct Labour Efficiency Variance = (10,400 - 11,000) * 8.50

Direct Labour Efficiency Variance = (\$ 5100) Unfavorable Variance

Question 3

Variable Overhead Rate Variance = (Standard Variable Overhead Rate per Hour * Actual Hours) - Actual Variable Overhead

Actual Variable Overheads = \$ 38,950

Standard Variable Overhead Rate per Hour = \$ 3.75

Actual Hours = 11,000 Hours

Variable Overhead Rate Variance = (3.75 * 11,000) - 38,950

Variable Overhead Rate Variance = \$ 2300 Favourable Variance

Variable Overhead Efficiency Variance = (Standard Variable Overhead Rate per Hour * Standard Labour Hours for Actual Output ) - (Standard Variance Overhead Rate per Hour * Actual Hours)

Standard Variable Overhead Rate per Hour = \$ 3.75

Actual Hours = 11,000 Hours

Standard Labour Hours for Actual Output = 10,400

Variable Overhead Efficiency Variance = (3.75 * 10,400) - (3.75 * 11,000)

Variable Overhead Efficiency Variance = (\$ 2250) Unfavorable Variance

Actual Fixed Overhead = \$ 75,350

Budgeted Fixed Overhead = \$ 64,500

Fixed Overhead Budget Variance = (64,500 - 75,350)

Fixed Overhead Budget Variance = (\$ 10,850) Unfavorable Variance

Fixed Overhead Volume Variance = (Standard Fixed Overhead Rate per Hour * Standard Hours for Actual Production) - Budgeted Fixed Overhead

Standard Fixed Overhead Rate per Hour = \$ 6.45

Budgeted Fixed Overhead = \$ 64,500

Standard hours For Actual Output = 10,400 Hours

Fixed Overhead Volume Variance = (10,400 * 6.45) - 64,500

Fixed Overhead Volume Variance = \$ 2580 Favourable Variance

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