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# Computation of materials, labor, and overhead variances Tuna Company set the following standard unit costs for its single product. Direct materials...

V. Computation of materials, labor, and overhead variances
Tuna Company set the following standard unit costs for its single product.
Direct materials (25 lbs. @ \$4 per lb.)………………………………….. \$100.00
Direct labor (6 hrs. @ \$8 per hr.)……………………………………….. 48.00
Factory overhead-variable (6 hrs. @ \$5 per hr.)………………………... 30.00
Factory overhead-fixed (6 hrs. @ \$7 per hr.)…………………………… 42.00
Total standard cost………………………………………………………. \$220.00

The predetermined overhead rate is based on a planned operating volume of 80% of the productive capacity of 60,000 units per quarter. The following flexible budget information is available.
Operating Levels
70% 80% 90%
Production in units………………………… 42,000 48,000 54,000
Standard direct labor hours………………... 252,000 288,000 324,000
Fixed factory overhead…………… \$2,016,000 \$2,016,000 \$2,016,000

During the current quarter, the company operated at 70% of capacity and produced 42,000 units of product; actual direct labor totaled 250,000 hours. Units produced were assigned the following standard costs:
Direct materials (1,050,000 lbs.@ \$4 per lb.)………………………….. \$4,200,000
Direct labor (252,000 hrs. @ \$8 per hr.)……………………………….. 2,016,000
Factory overhead (252,000 hrs.@ \$ 12 per hr.)………………………… 3,024,000
Total standard cost……………………………………………………….\$9,240,000

Actual costs incurred during the current quarter follow:
Direct materials (1,000,000 lbs. @ \$4.25)……………………. \$4,250,000
Direct labor (250,000 hrs. @ \$7.75)………………………….. 1,937,500
Total actual costs……………………………………………... \$9,347,500

3. Compute the overhead controllable and volume variances.
4. Compute the variable overhead spending and efficiency variance

3)
At 70% Capacity Budgeted Variable overhead rate
=\$1,260,000 /252,000Hrs

## This question was asked on Mar 13, 2012 and answered on Mar 15, 2012.

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