Costello Corporation manufactures a single product The stand

Costello Corporation manufactures a single product. The standard cost per unit of product is shown below.

The predetermined manufacturing overhead rate is $14 per direct labor hour ($28.00 ÷ 2.00). It was computed from a master manufacturing overhead budget based on normal production of 12,000 direct labor hours (6,000 units) for the month. The master budget showed total variable costs of $84,000 ($7.00 per hour) and total fixed overhead costs of $84,000 ($7.00 per hour). Actual costs for October in producing 3,500 units were as follows.

The purchasing department buys the quantities of raw materials that are expected to be used in production each month. Raw materials inventories, therefore, can be ignored.

(a) Compute all of the materials and labor variances. (Round answers to 0 decimal places, e.g. 125.)

(b) Compute the total overhead variance.

Open Show Work

Solution

a) Material and labor variance

Total material variance

(AQ*AP)-(SQ*SP)

= (7140*$6.43) - (3500*$6.23)

= $45910-$21805

= 24,105 unfavourable

Material Price variance

(AQ*AP)-(AQ*SP)

= (7140*6.43) - (7140*6.23)

= 45910-44,482

= 1,428 unfavourable

material quantity variance

(AQ*SP)-(SQ*SP)

= (7140*$6.23) - (3500*$6.23)

= $44,482-$21805

= $22,677 unfavourable

Total Labor variance

(AH * AR)- (SH*SR)

(6840*$11.22)-(7000# * $11.00) # 3500 units *2 hours

$76,745-$77000

=$ 255 Favourable

Labor Price variance

(AH * AR)- (AH*SR)

(6840*$11.22)-(6840 * $11.00)   

$76,745-$75,240

= $1505 UnFavourable

Labor Quanity variance

(AH * SR)- (SH*SR)

(6840*$11.00)-(7000 * $11.00)   

$75,240-$77,000

= $1760 Favourable

b) Total Overhead Variance

Actual Overhead - Overhead applied

= ($70,558+$29,432) - (7000*14)

=$99,990 - 98,000

= $1990 Unfavourable