Computin Company produces a number of products inchading an

Computin Company produces a number of products, inchading an insulating device for computer power supplies. The firm, which began operations at the beginning of the current year, uses a standard cost system. The standard costs for an insulating device produced for personal computers are provided below: Direct material (0.5 kg.@ $1.00) 0.50 Direct labour (I hr.@$10.00) $10.00 Variable overbead (1 hr.@$1.00) $1.00 Fixed overhead (1 hr.@ S0.50)$0.50 12.00 The S0.50 fixed overhead rate is based on total budgeted fixed overhend costs of $17,000. There were no changes in any inventory account during the period. The company produced and sold 35,000 units at the following costs: Direct materials (18,000 kgs) Direct labour (36,000 hrs) Variable factory overbcad Fixed factory overhead 17,280 $374,400 34,500 $15,000 Required: Compute and label as Favourable (F) or Unfavourable (U) the following variances: (a.) Direct materials usage variance (b.) Direct labour rate variance (c.) Total variable overhead variance (d.) Fixed overhead volume variance

Solution

1 Direct material usage variance= (actual quantity- standard quantity)* actual rate =(18000-35000*0.5)*17280/18000 $        480.00 U 2 Direct labor rate variance=(actual rate-standard rate)*standard quantity =(374400/36000-10)*35000*1 $ 14,000.00 U 3 Total variable overhead variance=Standard overhead-actual overhead =35000*1-34500 $        500.00 F 4 Fixed overhead volume variance=absorbed fixed overheads-budgeted fixed overheads =35000*1*0.5-17000 $        500.00 F