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    Variance calculation

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    Putnam Corporation manufactures a single product. The standard cost per unit of product is shown below.

    Direct materials-1 pound plastic at $7.00 per pound $ 7.00
    Direct labor-1.5 hours at $12.00 per hour 18.00
    Variable manufacturing overhead 11.25
    Fixed manufacturing overhead 3.75
    Total standard cost per unit $40.00

    The predetermined manufacturing overhead rate is $10 per direct labor hour ($15.00 ÷ 1.5). It was computed from a master manufacturing overhead budget based on normal production of 7,500 direct labor hours (5,000 units) for the month. The master budget showed total variable costs of $56,250 ($7.50 per hour) and total fixed overhead costs of $18,750 ($2.50 per hour). Actual costs for October in producing 4,900 units were as follows.

    Direct materials (5,100 pounds) $ 37,230
    Direct labor (7,000 hours) 87,500
    Variable overhead 56,170
    Fixed overhead 19,680
    Total manufacturing costs $200,580

    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.
    Compute variances.


    (a) Compute all of the materials and labor variances.

    (b) Compute the total overhead variance.

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    Solution Summary

    The solution explains the calculation of material, labor and overhead variances