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Gotham Company uses a standard cost system and sets its predetermined overhead rate on the basis of direct labor hours. The following data are taken
- Gotham Company uses a standard cost system and sets its predetermined overhead rate on the basis of direct labor hours. The following data are taken from the company's planning budget for the current year:
Denominator activity (direct labor hours) | 5,000 |
Variable manufacturing overhead cost | $25,000 |
Fixed manufacturing overhead cost | $59,000 |
The standard cost card for the company's only product is given below:
Inputs |
|
| Standard Cost (1) x (2) |
Direct materials | 3 yards | $4.40 per yard | $13.20 |
Direct labor | 1 hour | $12 per hour | 12.00 |
Manufacturing overhead | 1 hour | $16.80 per hour | 16.80 |
Total standard cost per unit | $42 |
During the year, the company produced 6,000 units of product and incurred the following actual results:
Materials purchased, 24,000 yards at $4.80 per yard | $115,200 |
Materials used in production (in yards) | 18,500 |
Direct labor cost incurred, 5,800 hours at $13 per hour | $75,400 |
Variable manufacturing overhead cost incurred | $29,580 |
Fixed manufacturing overhead cost incurred | $60,400 |
Required:
- Create a new standard cost card that separates the variable manufacturing overhead per unit and the fixed manufacturing overhead per unit.
- Compute the materials price and quantity variances. Also, compute the labor rate and efficiency variances.
- Compute the variable overhead rate and efficiency variances. Also, compute the fixed overhead budget and volume variances.
- What effect, if any, does the choice of a denominator activity level have on unit standard costs? Is the volume variance a controllable variance from a spending point of view? Explain.
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