Problem 231A part level submission Costello Corporation manu

*Problem 23-1A (part level submission) Costello Corporation manufactures a single product. The standard cost per unit of product is shown below Direct materials-2 pound plastic at $6.50 per pound Direct labor-1.50 hours at $11.00 per hour Variable manufacturing overhead Fixed manufacturing overhead Total standard cost per unit 13.00 16.50 9.00 6.00 $44.50 The predetermined manufacturing overhead rate is $10 per direct labor hour ($15.00 ÷ 1.50). It was computed from a master manufacturing overhead budget based on normal production of 8,100 direct labor hours (5,400 units) for the month. The master budget showed total variable costs of $48,600 ($6.00 per hour) and total fixed overhead costs of $32,400 ($4.00 per hour). Actual costs for October in producing 3,400 units were as followss Direct materials (6,950 pounds) Direct labor (4,900 hours) Variable overhead Fixed overhead $ 46,704 55,370 38,350 14,690 $155,114 Total manufacturing costs 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

Solution

Total Material Variance = Material Price Variance + Material Quantity Variance

= 1529 + 975 = 2504 (Unfavourable)

Material Price Variance = Actual Quantity * (Actual Price - Standard Price)

= 6950 * (46704 / 6950 - 6.50) = 1529 (Unfavourable)

Material Quantity Variance = (Actual usage in units - Standard usage in units) x Standard cost per unit

= (6950 - 3400*2) * 6.50 = 975 (Unfavourable)

Total Labour Variance = Labour Rate Variance + Labor Efficiency Variance

= -1470 + 2000 = 530 (Favourable)

Labour Rate Variance = Actual Hours * (Actual Price - Standard Price)

= 4900 * (55370 / 4900 - 11) = 1470 (Unfavourable)

Labor Efficiency Variance = (Actual hours - Standard hours) x Standard rate

= (4900 - 3400*1.50) * 11 = 2200 (Favourable)