Sanchez Manufacturing Company uses a standard cost accounting system to account for the manufacture of exhaust fans. In July 2010, it accumulates the following data relative to 1,800 units started and finished.

Manufacturing overhead was applied on the basis of direct labor hours. Normal capacity for the month was 3,400 direct labor hours. At normal capacity, budgeted overhead costs were $20 per labor hour variable and $10 per labor hour fixed. Total budgeted fixed overhead costs were $34,000.

Jobs finished during the month were sold for $280,000. Selling and administrative expenses were $25,000.

Instructions

(a) Compute all of the variances for (1) direct materials and (2) direct labor.

(b) Compute the total overhead variance.

(c) Prepare an income statement for management. Ignore income taxes.

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Cost and Production Data Actual Standard Raw materials Units purchased Units used Unit cost 21,000 21,000 22,000 $3.40 $3.00 Direct labor Hours worked 3,450 3,600 $12.50 $11.80 Hourly rate Manufacturing overhead $101,500 Incurred $108,000 Applied