Chapter 21: Q8DQ (page 967)
What is the purpose of using standard costs?
The use of standard cost facilitates the management to fix the price of a product, do the planning, and determine variances.
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Frontera Company’s output for the current period results in a \(20,000 unfavorable direct labor rate variance and a \)10,000 unfavorable direct labor efficiency variance. Production for the current period was assigned a $400,000 standard direct labor cost. What is the actual total direct labor cost for the current period?
Refer to the information from Exercise 21-17. Compute and interpret the following.
1. Variable overhead spending and efficiency variances.
2. Fixed overhead spending and volume variances.
3. Controllable variance.
Refer to the information from Exercise 21-17. Compute and interpret the following.
1. Variable overhead spending and efficiency variances.
2. Fixed overhead spending and volume variances.
3. Controllable variance.
James Corp. applies overhead on the basis of direct labor hours. For the month of May, the company planned production of 8,000 units (80% of its production capacity of 10,000 units) and prepared the following overhead budget.
Overhead Budget | Operating Level 80% |
Production in units | 8,000 |
Standard direct labor hours | 24,000 |
Budgeted overheads | |
Variable overhead costs | |
Indirect materials | \(15,000 |
Indirect labor | 24,000 |
Power | 6,000 |
Maintenance | 3,000 |
Total variable costs | 48,000 |
Fixed overhead costs | |
Rent of factory building | 15,000 |
Depreciation-Machinery | 10,000 |
Supervisory salaries | 19,400 |
Total fixed costs | 44,400 |
Total overhead costs | \)92,400 |
During May, the company operated at 90% capacity (9,000 units) and incurred the following actual overhead costs.
Overhead costs (actual) | |
Indirect materials | \(15,000 |
Indirect labor | 26,500 |
Power | 6,750 |
Maintenance | 4,000 |
Rent of factory building | 15,000 |
Depreciation-Machinery | 10,000 |
Supervisory salaries | 22,000 |
Total actual overhead costs | \)99,250 |
1. Compute the overhead controllable variance and classify it as favorable or unfavorable.
2. Compute the overhead volume variance and classify it as favorable or unfavorable.
3. Prepare an overhead variance report at the actual activity level of 9,000 units.
Sedona Company set the following standard costs for one unit of its product for 2017.
Direct material (20 Ibs. @ \(2.50 per Ib.) \) 50
Direct labor (10 hrs. @ \(22.00 per hr.) 220
Factory variable overhead (10 hrs. @ \)4.00 per hr.) 40
Factory fixed overhead (10 hrs. @ \(1.60 per hr.) 16
Standard cost \)326
The \(5.60 (\)4.00 + \(1.60) total overhead rate per direct labor hour is based on an expected operating level equal to 75% of the factory’s capacity of 50,000 units per month. The following monthly flexible budget information is also available.
A | B | C | D |
| Operating Levels (% of capacity) | |||
Flexible Budget | 70% | 75% | 80% |
Budgeted output (units) | 35,000 | 37,500 | 40,000 |
Budgeted labor (standard hours) | 350,000 | 375,000 | 400,000 |
Budgeted overhead (dollars) | |||
Variable overhead | \)1,400,000 | \(1,500,000 | \)1,600,000 |
Fixed overhead | 600,000 | 600,000 | 600,000 |
Total overhead | \(2,000,000 | \)2,100,000 | \(2,200,000 |
During the current month, the company operated at 70% of capacity, employees worked 340,000 hours, and the following actual overhead costs were incurred.
Variable overhead costs \)1,375,000
Fixed overhead costs 628,600
Total overhead costs $2,003,600
1. Show how the company computed its predetermined overhead application rate per hour for total overhead, variable overhead, and fixed overhead.
2. Compute the total variable and total fixed overhead variances and classify each as favorable or unfavorable.
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