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# Ikon Tire Co. - Computing Variance

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Ikon Tire Co. manufactures automobile tires. Standard Costs and actual costs for direct materials, direct labor, and factory overhead incurred for the manufacture of 36,000 tires were as follows:

Standard Cost Actual Cost
Direct Materials 72,000 pounds at \$4.50 73,100 pounds at \$4.80
Direct Labor 18,000 hours at \$18.00 18,500 hours at \$17.88
Factory Overhead Rates per direct labor hour, based on 100% of normal capacity of 20,000 direct labor hours:
Variable cost, \$2.40 \$42,870 variable cost
Fixed cost, \$3.75 \$75,000 fixed cost

Each tire requires 0.50 hour of direct labor.

Determine (a) the price variance, quantity variance, and total direct materials cost variance, (b) rate variance, time variance, and total direct labor cost variance, and (c) variable factory overhead controllable variance, fixed factory overhead volume variance, and total factory overhead cost variance

#### Solution Preview

Ikon Tire Co. manufactures automobile tires. Standard Costs and actual costs for direct materials, direct labor, and factory overhead incurred for the manufacture of 36,000 tires were as follows:

Standard Cost Actual Cost

Direct Materials 72,000 pounds at \$4.50 73,100 pounds at \$4.80
Direct Labor 18,000 hours at \$18.00 18,500 hours at \$17.88
Factory Overhead Rates per direct labor hour, based on 100% of normal capacity of 20,000 direct labor hours:
Variable cost, \$2.40 \$42,870 variable cost
Fixed cost, \$3.75 \$75,000 fixed cost

Each tire requires 0.50 hour of direct labor.

Instructions

Determine (a) the price variance, quantity variance, and total direct materials cost variance,
(b) rate variance, time variance, and total direct labor cost variance, and
(c) variable factory overhead controllable variance, fixed factory overhead volume variance, and total factory overhead cost variance

(a) the price variance the price variance, quantity variance, and total direct materials cost variance

In order to find the variance, we ...

#### Solution Summary

This solution is comprised of a detailed explanation and calculation to compute price variance, quantity variance, total direct materials cost variance, rate variance, time variance, total direct labor cost variance, variable factory overhead controllable variance, fixed factory overhead volume variance, and total factory overhead cost variance.

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