PROBLEM 1

The standard specifications for an electric motor manufactured by AAA Electric Co. follow:

Standard cost per unit:

Materials (2 lb * $5 per lb)..................$10

Labor (4hr * $12 per hr).......................$48

Factory overhead ( 4hr * $ 3.38 per hr).... $13.52

Total Standard Cost............................$71.52

*$1.00 variable + $2.38 fixed= $3.38

Factory overhead rates are based on a normal 70% capacity and use the following flexible budget:

Normal

70% 85% 100%

Motors to be produced ................2100 2550 3000

Variable overhead.......................$8,400 $10,200 $12,000

Fixed overhead...........................$20,000 $20,000 $20,000

The actual production was 2,500 motors, and factory overhead costs totaled $29,750.

CALCULATE THE FACTORY OVERHEAD VARIANCES USING THE TWO- VARIANCE METHOD