Question

Songsu Co. is struggling to control costs. We are hired as consultants to determine why the company’s actual costs exceed budgeted costs. The Tableau Dashboard is provided for our analysis.AH = Actual HoursSH = Standard HoursAR = Actual RateSR = Standard Rate1. & 2. Compute the direct labor rate variance and direct labor efficiency variance. Indicate whether this cost variance is favorable, unfavorable or no variance.3. & 4. Compute the variable overhead variance and fixed overhead variance. Indicate whether this cost variance is favorable, unfavorable or no variance.

Answer 1

Answer:

1. Direct labor rate variance=$38,250 Favorable

2. Direct labor efficiency variance=$43,350 UnFavorable

3. Variable overhead cost=$21,400 Favourable

4. Fixed overhead cost=$6,800 Unfavorable

Explanation:

1. & 2. Computation for the direct labor rate variance and direct labor efficiency variance

Computation for DIRECT LABOR RATE VARIANCE using this formula

Direct labor rate variance= (Actual hour * Actual rate)-(Actual hour* Standard rate)

Let plug in the formula

Direct labor rate variance=[(5,100*2.5)*$14]- [(5,100*2.5)*$17]

Direct labor rate variance=(12,750*$14)-(12,750*$17)

Direct labor rate variance=$178,500-$216,750

Direct labor rate variance=$38,250 Favorable

Therefore Direct labor rate variance will be $38,250 Favorable

Computation for DIRECT LABOR EFFICIENCY VARIANCE using this formula

Direct labor efficiency variance= (Actual hour *Standard rate)-(Standard hour* Standard rate)

Let plug in the formula

Direct labor efficiency variance=[(5,100*2.5)*$17]- [(5,100*2)*$17]

Direct labor efficiency variance=(12,750*$17)-(10,200*$17)

Direct labor efficiency variance=$216,750-$,173,400

Direct labor efficiency variance=$43,350 UnFavorable

Therefore Direct labor efficiency variance will be $43,350 UnFavorable

3. & 4. Computation for the variable overhead variance and fixed overhead variance.

Computation for VARIABLE OVERHEAD VARIANCE

First step is to calculate the Overhead cost applied using this formula

Let plug in the formula

Overhead cost applied=Predetermined overhead rate*Standard Direct Labor hour)

Overhead cost applied=$12*(5,100*2)

Overhead cost applied=$12*10,200

Overhead cost applied=$122,400

Now let calculate Variable overhead cost using this formula

Variable overhead cost=Overhead cost applied-Actual results

Let plug in the formula

Variable overhead cost=$122,400-$101,000

Variable overhead cost=$21,400 favourable

Therefore Variable overhead cost will be $21,400 Favourable

Computation for FIXED OVERHEAD VARIANCE

First step is to calculate the overhead cost applied using this formula

Overhead cost applied=Predetermined overhead rate*Standard DL hour)

Overhead cost applied=$6*(5,100*2)

Overhead cost applied=$6*10,200

Overhead cost applied=$61,200

Now let calculate Fixed overhead cost using this formula

Fixed overhead cost=Predetermined overhead rate*Standard Direct Labor hour)

Let plug in the formula

Fixed overhead cost=$61,200-&68,000

Fixed overhead cost=$6,800 Unfavorable

Therefore Fixed overhead cost will be $6,800 Unfavorable