ABC Company manufactures tires. Standard and actual costs for the manufacture of 5,500 tires were as follows:
Direct Materials
Standard 82,000 lbs. @ $5.10
Actual 82,600 lbs. @ $5.00
Direct Labor
Standard 1,650 hrs. @ $17.50
Actual 1,680 hrs. @ $17.40
Factory Overhead
Standard: FOH rates per DL hour based on 100% normal capacity of 1,500 DL hours
Variable $ 3.10
Fixed $ 4.90
Actual: Variable $5,000
Each tire requires 0.3 hr. of DL
Required:
1. Calculate the following variances:
A. DM (price, quantity, total)
B. DL (rate, time, total)
C. FOH (variable, fixed)
2. Provide a hypothetical example which would explain the DM and DL variances above:
DM Price and Quantity
DL Rate and Time
3. For the FOH Fixed (volume) variance:
A. What was the Actual number of tires produced vs. Budgeted number of tires?
B. Calculate Budgeted Fixed FOH/Actual Units vs. Budgeted Fixed FOH/Budgeted Units
C. Explain why the Fixed FOH variance was favorable or unfavorable
