PROBLEM 11-9. Comprehensive Variance Problem

Bowser 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

a.Calculate variances for material, labor, and overhead.

b.Make a summary of the variances. Does the unfavorable overhead volume variance suggest that overhead costs are out of control?