Reference no: EM132583012

Julia Inc. manufactures special equipment and parts. North employs a standard cost accounting system with separate standards established for each product.

A special circuit breaker is manufactured in the Circuit breaker Department. Production volume is measured by direct labor hours in this department and a flexible budget system is used to plan and control department overhead. Standard costs for the special circuit breaker are determined annually in September for the coming year. The standard cost of a circuit breaker was computed at $57.00 as shown below.

Direct materials

Copper 3 spools @$3.00 9.00

Direct labor 4 hours @ 7.00 28.00

Variable overhead 4 hours @ $3.00 12.00

Fixed overhead 4 hours @ $2.00 8.00

Total                                     $57.00

Overhead rates were based upon normal and expected monthly capacity, both of which were 4,000 direct labor hours. Practical capacity for this department is 5,000 direct labor hours per month. Variable overhead costs are expected to vary with the number of direct labor hours actually used.During October, 900 circuit breakers were produced. This was below expectations because a work stoppage occurred during contract negotiations with the labor force. Once the contract was settled, the wage rate was increased to $7.25/hour and overtime was scheduled in an attempt to catch up to expected production levels.

The following costs were incurred in October:

Direct Materials:

Copper purchased 2,600 spools @ $3.08 per spool

Used 2,600 spools

Direct labor:

Regular time 2,000 hours @ $7.00

Overtime 1,400 @ $7.25

600 of the 1,400 hours were subject to overtime premium. The total overtime premium is included in variable overhead in accordance with company accounting practices

Overhead:

Variable $16,670

Overtime $8,800

Required:

Question 1: Compute each of the following variances, showing all your work. Be sure to indicate whether the variances are favorable or unfavorable.

a. Direct materials price variance

b. Direct material efficiency (quantity) variance

c. Direct labor rate variance

d. Direct labor efficiency variance

e. Variable overhead spending variance

f. Variable overhead efficiency variance

g. Fixed overhead spending (budget) variance

h. Production volume variance me variance