ABC Company makes a single product which has the following standards: Direct materials 2 kilograms $4.30 per kilogram Direct labor 3 hours $6.00 per hour Variable overhead 3 hours $6.50 per hour Fixed overhead 3 hours $9.00 per hour The following data pertain to June's operations: • Direct labor was $820,500 for 147,000 hours worked • Direct material purchases were 110,000 kilograms for $485,000 • Variable manufacturing overhead incurred was $986,000 • Fixed manufacturing overhead incurred was $1,154,500 • 93,000 kilograms of direct materials were used • The company sold 42,000 units at $130 each • Variable manufacturing overhead is applied based on direct labor hours • 46,000 units were produced during the year • Budgeted production was 45,000 units • At the beginning of June there were no inventories. The labor rate variance is: Do not round intermediate calculations. $54,000 F $61,500 U $54,000 U $61,500 F
Variance Analysis
In layman's terms, variance analysis is an analysis of a difference between planned and actual behavior. Variance analysis is mainly used by the companies to maintain a control over a business. After analyzing differences, companies find the reasons for the variance so that the necessary steps should be taken to correct that variance.
Standard Costing
The standard cost system is the expected cost per unit product manufactured and it helps in estimating the deviations and controlling them as well as fixing the selling price of the product. For example, it helps to plan the cost for the coming year on the various expenses.
ABC Company makes a single product which has the following standards:
Direct materials 2 kilograms $4.30 per kilogram
Direct labor 3 hours $6.00 per hour
Variable
Fixed overhead 3 hours $9.00 per hour
The following data pertain to June’s operations:
• Direct labor was $820,500 for 147,000 hours worked
• Direct material purchases were 110,000 kilograms for $485,000
• Variable manufacturing overhead incurred was $986,000
• Fixed manufacturing overhead incurred was $1,154,500
• 93,000 kilograms of direct materials were used
• The company sold 42,000 units at $130 each
• Variable manufacturing overhead is applied based on direct labor hours
• 46,000 units were produced during the year
• Budgeted production was 45,000 units
• At the beginning of June there were no inventories.
The labor rate variance is:
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