Question

A manufactured product has the following information for June.

Standard Actual

Direct materials 6 lbs.@ \(8 per lbs. 48,500 lbs.@ \)8.10 per lb.

Direct labor 2 hrs.@ \(16 per hr. 15,700 hrs.@ \)16.50 per hr.

Overhead 2 hrs.@ \(12 per hr. \)198,000

Units manufactured 8,000

Compute the:

(1) Standard cost per unit and

(2) Total cost variance for June. Indicate whether the cost variance is favorable or unfavorable.

Short answer

(1) Standard cost per unit is $104.

(2) The total cost variance is unfavorable.

Step-by-step solution

Meaning of Cost Variance

The managers use the cost variance analysis to determine the difference between actual and standard costs. If the actual cost is less than the standard cost, the variance is considered favorable and vice versa.

Computation of standard cost per unit

Particulars	Details	Amounts ($)
Direct material	$8*6	$48
Direct labor	$16*2	$32
Overhead	$12*2	$24
Total		$104

Computation of total cost variance

• Computation of total standard cost:

Particulars	Amounts ($)
Direct material (8,000*48)	384,000
Direct labor (8,000*32)	256,000
Overhead (8,000*24)	192,000
Total standard cost	$832,000

• Computation of total actual cost:

Particulars	Amounts ($)
Direct material (48,500*8.10)	392,850
Direct labor (15,700*16.50)	259,050
Overheads	198,000
Total actual cost	$849,900

$$\begin{gathered} \mathbf{\text{Totalvariablecost=Totalactualcost-Totalstandardcost}} \\ \mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{=}\mathbf{\text{\$849,900-\$832,000}} \\ \mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{=}\mathbf{\text{\$17,900(Unfavorable)}} \end{gathered}$$