The following information applies to the questions displayed

[The following information applies to the questions displayed below.] Trico Company set the following standard unit costs for its single product. Direct materials (27 Ibs. @ $3 per Ib.) $ 81.00 Direct labor (6 hrs. @ $6 per hr.) 36.00 Factory overhead—variable (6 hrs. @ $4 per hr.) 24.00 Factory overhead—fixed (6 hrs. @ $5 per hr.) 30.00 Total standard cost $ 171.00 The predetermined overhead rate is based on a planned operating volume of 60% of the productive capacity of 70,000 units per quarter. The following flexible budget information is available. Operating Levels 50% 60% 70% Production in units 35,000 42,000 49,000 Standard direct labor hours 210,000 252,000 294,000 Budgeted overhead Fixed factory overhead $ 1,260,000 $ 1,260,000 $ 1,260,000 Variable factory overhead $ 840,000 $ 1,008,000 $ 1,176,000 During the current quarter, the company operated at 70% of capacity and produced 49,000 units of product; actual direct labor totaled 289,000 hours. Units produced were assigned the following standard costs: Direct materials (1,323,000 Ibs. @ $3 per Ib.) $ 3,969,000 Direct labor (294,000 hrs. @ $6 per hr.) 1,764,000 Factory overhead (294,000 hrs. @ $9 per hr.) 2,646,000 Total standard cost $ 8,379,000 Actual costs incurred during the current quarter follow: Direct materials (1,318,000 Ibs. @ $3.10 per lb.) $ 4,085,800 Direct labor (289,000 hrs. @ $5.75 per hr.) 1,661,750 Fixed factory overhead costs 2,562,830 Variable factory overhead costs 2,399,245 Total actual costs $ 10,709,625 Required: 1. Compute the direct materials cost variance, including its price and quantity variances. 2. Compute the direct labor variance, including its rate and efficiency variances. Compute the overhead controllable and volume variances.

Solution

Material price variance is the difference between what the material did cost and what it should have cost.

so

1,318,000 Ibs should have cost (*$3) =3,954,000
but it did cost = 4085,800

so there is an adverse variance of 131,800

Material usage/quantity variance is the difference between the standard cost of material that should had been used and the standard cost of the material that was used so

35,000 units should have used (*27 Ibs) =1,323,000 Ibs
but did use =1,318,000 Ibs

there is a favourable variance of 5000lbs

the labour rate variance is the difference between what the labour did cost and what it should have cost so
289,000 hrs should have cost (*$6) =1734,000
but did cost =1,661,750

there is a favourable variance of 1734,000-1,661,750 = 72250

the labour efficency variance is the difference between the standard cost of the hours that should have been worked and the standard cost of the hours that were worked so

35,000 units should have taken (*6hrs) =210000

but did take = 289,000 hrs

there is a favourable variance of 79000hrs