Reference no: EM132527568
Products operates a small plant in New Mexico that produces dog food in batches of 1,500 pounds. The product sells for $6 per pound. Standard costs for 2018 are:
Standard direct labor cost = $15 per hour
Standard direct labor hours per batch = 10 hours
Standard price of material A = $0.35 per pound
Standard pounds of material A per batch = 800 pounds
Standard price of material B = $0.55 per pound
Standard pounds of material B per batch = 250 pounds
Fixed overhead cost per batch = $500
At the start of 2018, the company estimated monthly production and sales of 50 batches. The company estimated that all overhead costs were fixed and amounted to $25,000 per month. During the month of June 2018 (typically a somewhat slow month), 42 batches were produced (not an unusual level of production for June).
The following costs were incurred:
Direct labor costs were $7,800 for 460 hours.
37,500 pounds of material A costing $8,500 were purchased and used.
12,000 pounds of material B costing $5,600 were purchased and used.
Fixed overhead of $23,000 was incurred.
Required
Question a. Calculate variances for material, labor, and overhead.
Question b. Make a summary of the variances. Does the unfavorable overhead volume variance suggest that overhead costs are out of control?
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