Tony's Furniture Polish STANDARD COSTS
Quantity Price Cost
Direct Materials 6 oz. $0.90 $5.40
Direct Labor .5 hours $12.00 $6.00
Manufacturing Overhead .5 hours $4.80 $2.40
$13.80
During January, Tony's manufactured 10,000 bottles of polish.
Other Information
1. A total of 58,000 ounces of materials were purchased at $1.00 per ounce.
2. All materials purchased were used up.
3. A total of 4,900 direct labor hours were used at a total cost of $56,350.
4. Actual variable manufacturing overhead cost was $15,000 and fixed
overhead cost incurred was $10,400.
The manufacturing overhead cost of $4.80 is based on a normal capacity
of 5200 direct labor hours. At 5200 DLH, variable overhead is $14,560 and
fixed overhead cost is $10,400.
Variable Overhead $14,560 /5200 $2.80
Fixed Overhead 10,400 /5200 $2.00
Total $24,960 /5200 $4.80
1. Compute DM variances.
2. Compute DL variances.
Note that the right prong of the diagram indicates that the standard
DL hours for 10,000 bottles of polish is equal to 10,000*.5hours=
5,000 standard hours.
3. Compute Manufacturing Overhead variances.
Variable Overhead Controllable Variance
VOCC = Actual Variable Overhead - Budgeted Variable Overhead
at standard hours for units produced
15,000 minus 5,000 DLH * 2.80
15,000 - 14,000 = 1,000 Unfavorable
Actual Variable Overhead was greater than budgeted, so it's
unfavorable.
Fixed Overhead Volume Variance
FOVV = (Standard Hours for 100% capacity - Standard Hours for Units Produced) * Fixed Overhead Rate
(5200 minus 5000) * 2 = 400 Unfavorable
We are under capacity (by 200 hours) so this variance is unfavorable as well.
Total Overhead Variance = 1,000 + 400 = 1400 Unfavorable
Manufacturing Overhead
Actual Applied
25,400 5000*4.80=24,000
1400
under
Note that sum of overhead variances reconciles with the amount of
underapplied overhead.