Chapter 8, Problem 17P

(Appendix) Materials, labor, and overhead variances–four-variance method

Shinto Corp. uses a standard cost system and manufactures one product. The variable costs per product follow:

Budgeted fixed overhead costs for the month are $4,000, and Shinto expected to manufacture 2,000 units. Actual production, however, was only 1,800 units. Materials prices were 10% over standard, and labor rates were 5% over standard. Of the factory overhead expense, only 80% was used, and fixed overhead was $100 over budget. The actual variable overhead cost was $4,800. In materials usage, 8% more parts were used than were allowed for actual production by the standard, and 6% more labor hours were used than were allowed.

Required:

1. 1. Calculate the materials and labor variances.
2. 2. Calculate the variances for overhead by the four-variance method. (Hint: First compute the fixed and variable overhead rates per hour.)