Wallace Company manufactures a product that is accounted for using a standard process costing system with the following standards:
Materials-2 pieces at $.48 each ..............................................$ .96
Labor-1/2 hour at $7.60 per hour ............................................. 3.80
Variable factory overhead-1/2 hour at $1.40 per hour ................... .70
Fixed factory overhead-1/2 hour at $.40 per hour ........................ .20
$5.66
The company's standards include an allowance for normal spoilage. Equivalent production computations for standard costing are made for good units only. By this procedure, excess spoilage becomes a contributing factor to the computed variances. The following data are available for September:
Beginning inventory (all materials, 50% converted) .....................10,000 units
Started in process .............................................................40,000 units
Transferred to finished goods ..............................................42,000 units
Ending inventory (all materials, 90% converted) ........................5,000 units
Fixed factory overhead budgeted ..........................................$ 8,000
Materials used (76,000 pieces) ..............................................38,000
Labor (22,500 hours) .........................................................180,000
Variable factory overhead incurred ..........................................33,800
Fixed factory overhead incurred ..............................................8,200
Required:
Compute two variances for materials and labor, and compute three variances for factory overhead, using the alternative three-variance method presented in the appendix to this chapter. Indicate whether the variances are favorable or unfavorable.