Wonderful! Not only did our salespeople do a good job in meeting the sales budget this year, but our production people did a good job in controlling costs as well, said the president of Butler Company. Our $19,790 overall manufacturing cost variance is only 1.54% of the $1,280,000 standard cost of products made during the year. That is well within the 3% parameter set by management for acceptable variances. It looks like everyone will be in line for a bonus this year.

The company produces and sells a single product. The standard cost card for the product follows:

Standard Cost Card per Unit of Product

Direct materials, 2 feet at $8.45 per foot $16.90

Direct labor, 1.4 direct labor hours at $16 per direct labor hour 22.40

Variable overhead, 1.4 direct labor-hours at $2.50 per direct labor-hour 3.50

Fixed overhead, 1.4 direct labor-hours at $6 per direct labor 8.40

Standard cost per unit $51.20

The following additional information is available for the year just completed:

The company manufactured 30,000 units of product during the year.

A total of 64,000 feet of material was purchased during the year at a cost of $8.55 per foot. All of this material was used to manufacture the 30,000 units. There was no beginning or ending inventories for the year.

The company worked 43,500 direct labor-hours during the year at a direct labor cost of $15.80 per hour.

Overhead is applied to products on the basis of standard direct labor-hours. Data relating to manufacturing overhead costs follow:

Denominator activity level (direct labor-hours) 35,000

Budgeted fixed overhead costs (from the overhead flexible budget) $210,000

Actual variable overhead costs incurred $108,000

Actual fixed overhead costs incurred $211,800

Required:

1. Complete the eight variances we discussed in class.
2. Total the variances you have computed, and compare the net amount with the $19,790 mentioned by the president. Do you agree that bonuses should be given to everyone for good cost control during the year? Explain.