Question 3

Tyler Inc. manufactures a single product that has a standard materials cost of $20 (2 units of raw materials at $10 per unit), standard direct labor cost of $18 (1 hour per unit), and standard variable overhead cost of $8 (based on direct labor-hours). Fixed overhead is budgeted at $34,000 per month.

The following data pertain to operations for May of this year:

Raw materials purchased	3,600 units costing $31,608
Raw materials used in production of 1,500 units of finished product	3,200 units of raw materials
Direct labor used	1,500 hours costing $30,000
Variable overhead costs incurred	$11,920
Fixed overhead costs incurred	$35,000

Required:

a. Compute the following variances (show calculations); make sure to include whether the variance is favorable or unfavorable: (30 points)

1. Materials price variance

2. Labor rate variance

3. Labor efficiency variance

4. Variable overhead spending variance

5. Variable overhead efficiency variance

b. Give one possible explanation for each of the six variances computed in requirement (a). 5 points