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Materials, labor, and overhead variance report

Kudos Company has set the following standard costs per unit for the product it manufactures.

Direct materials ( 10 Ibs. @ $ 3 per Ib.). . . . . . . . . . . $ 30.00
Direct labor ( 4 hrs. @ $ 6 per hr.) . . . . . . . . . . . . . 24.00
Overhead ( 4 hrs. @ $ 2.50 per hr.) . . . . . . . . . . . . . 10.00
Total standard cost . . . . . . . . . . . . . . . . . . . . . . . . . $ 64.00

The predetermined overhead rate is based on a planned operating volume of 80% of the productive capacity of 10,000 units per month. The following flexible budget information is available.

----------------------------------------------------Operating Levels
----------------------------------------------------70% 80% 90%
Production in units . . . . . . . . . . . . . . . . . . 7,000 8,000 9,000
Standard direct labor hours . . . . . . . . . . . 28,000 32,000 36,000

Budgeted overhead
Variable overhead costs
Indirect materials . . . . . . . . . . . . . . . . $ 8,750 $ 10,000 $ 11,250
Indirect labor . . . . . . . . . . . . . . . . . . . 14,000 16,000 18,000
Power . . . . . . . . . . . . . . . . . . . . . . . . . 3,500 4,000 4,500
Maintenance . . . . . . . . . . . . . . . . . . . . 1,750 2,000 2,250
Total variable costs . . . . . . . . . . . . . . 28,000 32,000 36,000
Fixed overhead costs
Rent of factory building . . . . . . . . . . 12,000 12,000 12,000
Depreciation - machinery . . . . . . . . 20,000 20,000 20,000
Supervisory salaries . . . . . . . . . . . . . 16,000 16,000 16,000
Total fixed costs . . . . . . . . . . . . . . . . . 48,000 48,000 48,000
Total overhead costs . . . . . . . . . . . . $ 76,000 $ 80,000 $ 84,000

During May, the company operated at 90% of capacity and produced 9,000 units, incurring the following actual costs.

Direct materials ( 92,000 Ibs. @ $ 2.95 per Ib.) . . . . . . . . ..................... $ 271,400
Direct labor ( 37,600 hrs. @ $ 6.05 per hr.) . . . . . . ................................. .227,480
Overhead costs
Indirect materials . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 10,000
Indirect labor . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16,000
Power . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4,500
Maintenance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3,000
Rent of factory building . . . . . . . . . . . . . . . . . . . . . . . . . 12,000
Depreciation - machinery . . . . . . . . . . . . . . . . . . . . . . . 19,200
Supervisory salaries . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17,000............. 81,700
Total costs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .......................... $ 580,580

Required

1. Compute the direct materials variance, including its price and quantity variances.
2. Compute the direct labor variance, including its rate and efficiency variances.
3. Compute these variances:
(a) variable overhead spending and efficiency,
(b) fixed overhead spending and volume, and
(c) total overhead controllable.
4. Prepare a detailed overhead variance report that shows the variances for individual items of overhead.

Solution Summary

Materials, labor and overhead variance reports are examined.

$2.19