Antuan Company set the following standard costs for one unit of its product. Direct materials (6 Ibs. @ $5 per Ib.) $ 30 Direct labor (2 hrs. @ $17 per hr.) 34 Overhead (2 hrs. @ $18.50 per hr.) 37 Total standard cost $ 101 The predetermined overhead rate ($18.50 per direct labor hour) is based on an expected volume of 75% of the factory’s capacity of 20,000 units per month. Following are the company’s budgeted overhead costs per month at the 75% capacity level. Overhead Budget (75% Capacity) Variable overhead costs Indirect materials $ 45,000 Indirect labor 180,000 Power 45,000 Repairs and maintenance 90,000 Total variable overhead costs $ 360,000 Fixed overhead costs Depreciation—Building 24,000 Depreciation—Machinery 80,000 Taxes and insurance 12,000 Supervision 79,000 Total fixed overhead costs 195,000 Total overhead costs $ 555,000 The company incurred the following actual costs when it operated at 75% of capacity in October. Direct materials (91,000 Ibs. @ $5.10 per lb.) $ 464,100 Direct labor (30,500 hrs. @ $17.25 per hr.) 526,125 Overhead costs Indirect materials $ 44,250 Indirect labor 177,750 Power 43,000 Repairs and maintenance 96,000 Depreciation—Building 24,000 Depreciation—Machinery 75,000 Taxes and insurance 11,500 Supervision 89,000 560,500 Total costs $ 1,550,725 Problem 21-3A Part 3 3. Compute the direct materials cost variance, including its price and quantity variances. (Indicate the effect of each variance by selecting for favorable, unfavorable, and No variance

FINANCIAL ACCOUNTING

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

Section: Chapter Questions

Problem 1Q

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Problem 21-3A Flexible budget preparation; computation of materials, labor, and overhead variances; and overhead variance report LO P1, P2, P3, P4

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Antuan Company set the following standard costs for one unit of its product.


Direct materials (6 Ibs. @ $5 per Ib.)	$	30
Direct labor (2 hrs. @ $17 per hr.)		34
Overhead (2 hrs. @ $18.50 per hr.)		37
Total standard cost	$	101

The predetermined overhead rate ($18.50 per direct labor hour) is based on an expected volume of 75% of the factory’s capacity of 20,000 units per month. Following are the company’s budgeted overhead costs per month at the 75% capacity level.

Overhead Budget (75% Capacity)
Variable overhead costs
Indirect materials	$	45,000
Indirect labor		180,000
Power		45,000
Repairs and maintenance		90,000
Total variable overhead costs			$	360,000
Fixed overhead costs
Depreciation—Building		24,000
Depreciation—Machinery		80,000
Taxes and insurance		12,000
Supervision		79,000
Total fixed overhead costs				195,000
Total overhead costs			$	555,000

The company incurred the following actual costs when it operated at 75% of capacity in October.


Direct materials (91,000 Ibs. @ $5.10 per lb.)			$	464,100
Direct labor (30,500 hrs. @ $17.25 per hr.)				526,125
Overhead costs
Indirect materials	$	44,250
Indirect labor		177,750
Power		43,000
Repairs and maintenance		96,000
Depreciation—Building		24,000
Depreciation—Machinery		75,000
Taxes and insurance		11,500
Supervision		89,000		560,500
Total costs			$	1,550,725

Problem 21-3A Part 3

3. Compute the direct materials cost variance, including its price and quantity variances. (Indicate the effect of each variance by selecting for favorable, unfavorable, and No variance.)

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