Dillard, Inc. has developed the following standard cost data based on 60,000 direct labor hours, which is 75% of the firm's capacity. Fixed overhead is $360,000 and variable overhead is $180,000 at this level of activity.
Direct material (3 lbs. @ $2.00/lb.) $ 6.00
Direct labor (0.5 hrs. @ $8.00/hr.) 4.00
Factory overhead (0.5 hrs. @ $9.00/hr.) 4.50
Total standard cost per unit $14.50
During the last period, the company actually spent 62,000 direct labor-hours to produce 128,000 units and incurred the following manufacturing costs:
Actual cost incurred
Direct material (380,000 lbs.) $779,000
Direct labor (62,000 hrs.) 507,150
Fixed overhead 365,000
Variable overhead 220,000
a. Determine all variances for direct materials, direct labor, and factory overheads. Use the 4-variance method for factory overheads.
b. What are possible causes of each of the variances?
Excel file contains calculations of all variances for direct materials, direct labor, and factory overheads using the 4-variance method for factory overheads and explains possible causes of each of the variances .