8-18 Direct Labor and Variable Overhead Variances (SIA, adapted) The Schock Manufacturing Company uses a standard cost system. The standards are set before January 1, each year and remain unchanged until December 31. The standard costs set for the next year are: Direct materials Direct labor Overhead $10.00 per unit 7.50 per unit 6.00 per unit The labor standard above includes a methods change from 2 hours to 12 hours per unit, effective January 1, and a change in labor rates from $4.00 to $5.00 per hour effective February 28. Overhead will be applied on the basis of standard labor hours. The stan- dard overhead rate per hour is $4.00 (1% hrs. X 4 = $6.00 per unit). The vari- able portion is $2.00 per hour. The original budgeted production volume for January was 5,000 units. The actual cost data for January are: Units produced, 6,000 Direct materials used, $62,000 Direct labor, 11,000 hours costing $46,000 Actual overhead incurred: Variable Fixed $23,000 $14,000 1. Prepare a Production statement for the month of January, showing:

(a) actual costs,

(b) budgeted production costs on a flexible-budget basis,

(c) budget variances. 2. Prepare detailed variance analyses for direct labor and variable overhead. 3. Comment on the January production performance-e.g., efficiency, reason for variances, and so on.