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Compute the Direct Materials and Labor Cost Variances

24-1A: Tuna Company set the following standard unit costs for its single product.
Direct materials (25 lbs. @ \$4 per lb) \$100.00
Direct labor (6 hrs. @8 per hr.) 48.00
Factory overhead : variable (6 hrs. @ \$5 per hr) 30.00
Factory overhead: fixed (6 hrs. @7 per hr) 42.00
Total standard costÃ¢ \$220.00

The predetermined overhead rate is based on a planned operating volume of 80% of the productive capacity of 60,000 units per quarter. The following flexible budget information is available.

Operating Levels
70% 80% 90%
Production in units 42,000 48,000 54,000
Standard direct labor hours 252,000 288,000 324,000
Flexible factory overhead \$2,016,000 \$2,016,000 \$2,016,000
Variable factory overhead \$1,260,000 \$1,440,000 \$1,620,000

During the current quarter, the company operated at 70% of capacity and produced 42,000 units of product; actual direct labor totaled 250,000 hours. Unit produced were assigned the following standard costs:

Direct materials (1,050,000 lbs. @ \$4 per lb) \$4,200,000
Direct labor (252,000 hrs. @8 per hr) 2,016,000
Factory overhead (252,000 hrs. @ \$12 per hr) 3,024,000
Total standard cost \$9,240,000

Actual costs incurred during the current quarter follows:

Direct materials (1,000,000 lbs. @ \$4.25) \$4,250,000
Direct labor (250,000 hrs. @ 7.75) 1,937,500
Total actual costs \$9,347,500

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.

Solution Preview

See attached file for format and formulas.

Tuna Company

Direct materials cost variance = Standard cost - Actual cost
\$4,200,000 - \$4,250,000
\$(50,000) unfavorable

Direct materials price variance = (Actual quantity purchased * ...

Solution Summary

This solution provides a detailed, step by step calculation of the given problem.

\$2.19