Henry Company has established the following standards for the costs of one unit of its product. The standard production overhead costs per unit are based on direct-labor hours. Calculation for standard per unit cost is as follows: Std Cost Std Qty Std Price/Rate Direct Material $ 14.40 6.00 kg $ 2.40 per kg Direct Labor $ 3.00 0.40 hour $ 7.50 per hour Variable Overhead $ 4.00 0.40 hour $ 10.00 per hour Fixed Overhead* $ 4.80 0.40 hour $ 12.00 per hour Total $ 26.20 *based on practical capacity of 2,500 direct-labor hour per month During December 2020, Henry purchased 30,000 kg of direct material at a total cost of $75,000. The total wages for December were $20,000, 75% of which were for direct labor. Henry manufactured 4,500 units of product during December 2020, using 28,000kg of the direct material purchased in December and 2,100 direct-labor hours. Actual variable and fixed overhead cost were $23,100 and $25,000, respectively. The scheduled production for the month was 5,000 units. Required: Calculate the following variances for December 2020, indicate whether each is favorable or unfavorable, and provide brief explanation of possible reasons for the related variances 1. The direct-material price variance 2. The direct-material usage variance 3. The direct-material purchase price variance
Henry Company has established the following standards for the costs of one unit of its product. The
standard production
unit cost is as follows:
Std Cost Std Qty Std Price/Rate
Direct Material $ 14.40
6.00 kg $ 2.40 per kg
Direct Labor $ 3.00
0.40 hour $ 7.50 per hour
Variable Overhead $ 4.00 0.40 hour $ 10.00 per hour
Fixed Overhead* $ 4.80 0.40 hour $ 12.00 per hour
Total $ 26.20
*based on practical capacity of 2,500 direct-labor hour per month
During December 2020, Henry purchased 30,000 kg of direct material at a total cost of $75,000. The total
wages for December were $20,000, 75% of which were for direct labor. Henry manufactured 4,500 units
of product during December 2020, using 28,000kg of the direct material purchased in December and
2,100 direct-labor hours. Actual variable and fixed overhead cost were $23,100 and $25,000, respectively.
The scheduled production for the month was 5,000 units.
Required:
Calculate the following variances for December 2020, indicate whether each is favorable or unfavorable,
and provide brief explanation of possible reasons for the related variances
1. The direct-material price variance
2. The direct-material usage variance
3. The direct-material purchase price variance
4. The direct-labor rate variance
5. The direct-labor efficiency variance
6. The Variable Overhead spending variance
7. The Variable Overhead efficiency variance
8. The Fixed Overhead spending variance
9. The Fixed Overhead volume variance
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