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variance analysis , Basic Statistics
Terry Co. manufactures a commercial solvent that is used for industrial maintenance. This solvent is sold by the drum and generally has a stable selling price. Due to a decrease in demand for this product, Terry produced and sold 60,000 drums in December. The following information is available regarding Terry''s operations for December:
Standard costs per drum of product manufactured were as follows:
10 gallons of raw materials $20
1 empty drum $1
Total Materials Costs $21
Direct labor (1 hour) $7
Fixed factory overhead (per direct
labor hour) $4
Variable factory overhead (per
direct labor hour) $6
Costs incurred during December were as follows:
Raw materials: 600,000 gallons were purchased at a cost of $1,150,000
700,000 gallons were used
Empty drums: 85,000 drums were purchased at a cost of $85,000
60,000 drums were used
Direct Labor: 65,000 hours were worked at a cost of $470,000
Depreciation of building and machinery: $230,000
Supervision and indirect labor: $360,000
Other factory overhead; $76,500
Total factory overhead: $666,500
The fixed overhead budget for the December level of production was $275,000
Normal capacity is $68,750 direct labor hours
Prepare a schedule computing the following variances for December:
(1) Materials price variance (computed at the time of purchase)
(2) Materials usage variance (quantity)
(3) Labor rate variance
(4) Labor usuage (efficiency) variance
(5) Factory overhead,using the three-way method
Indicate whether each variance is favorable or unfavorable
Posted Date: 4/17/2012 9:18:11 AM | Location : United States
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