Hector Company has developed the following standard costs fo

Hector Company has developed the following standard costs for its product for 2012: HECTOR COMPANY Standard Cost Card Product A Cost Element Standard Quantity × Standard Price = Standard Cost Direct materials 4 pounds $3 $12 Direct labor 3 hours 8 24 Manufacturing overhead 3 hours 4 12 $48 The company expected to produce 30,000 units of Product A in 2013 and work 90,000 direct labor hours. Actual results for 2013 are as follows: • 31,000 units of Product A were produced. • Actual direct labor costs were $746,200 for 91,000 direct labor hours worked. • Actual direct materials purchased and used during the year cost $346,500 for 126,000 pounds. • Actual variable overhead incurred was $155,000 and actual fixed overhead incurred was $205,000. Compute the following variances showing all computations to support your answers. Indicate whether the variance is favorable or unfavorable? (a) Materials Quantity Variance $ (b) Total Direct Labor Variance $ (c) Direct Labor Quantity Variance $ (d) Direct Materials Price Variance $ (e) Total Overhead Variance $

Solution

Total direct material cost variance = Actual direct material cost - Standard quantity of direct materials*Standard price = 346500-31000*4*3 = 25500 Favorable d) Materials price variance = Actual material cost-Actual quantity*Standard rate = 346500-126000*3 = 31500 Favorable a) Materials quantity variance = (Actual quantity-Standard quantity)*Standard rate = (126000-31000*4)*3 = 6000 Unfavorable b) Total direct labor variance = Actual labor cost-Standard labor cost =746200-31000*3*8 = 2200 Unfavorable Direct labor price variance = Acutal labor cost-Actual hours*Standard rate = 746200-91000*8 = 18200 Unfavorable c) Direct labor quantity variance = (Actual hours-Standardhours)*Standard rate = (91000-31000*3)*8 = 16000 Favorable e) Total overhead variance = Actual overhead - Overhead assigned = (155000+205000)-31000*3*4 = 12000 Favorable