Fundamentals of Cost Accounting 3rd Edition by William N. Lanen, Shannon W. Anderson, Michael Maher

Exercise 57

Comprehensive Variance Problem

Trenton Manufacturing Company manufactures one product, with a standard cost detailed as follows:

Direct materials, 20 yards at $6 per yard	$120
Direct labor, 25 hours at $5 per hour	125
Factory overhead applied at 80% of
direct labor (variable costs = $75; fixed costs = $25)	100
Variable selling and administrative	80
Fixed selling and administrative	50
Total unit costs	$475

Standards have been computed based on a master budget activity level of 14,400 direct labor-hours per month. Actual activity for the past month was as follows:

Materials used	9,500	yards at $6.15 per yard
Direct labor	12,600	hours at $5.10 per hour
Total factory overhead	$55,500
Production	500	units

Required

Prepare variance analyses for the variable and fixed costs. Indicate which variances cannot be computed. Materials are purchased as they are used.

Step 1 of 4

Cost accounting

This system is designed for inhouse or internal managers and their decision making. Cost accounting information is not needed for comparison with other companies. This information is commonly used in financial accounting also, but it is primarily used by company managers for their decision making. It is important that cost accounting information is relevant for the decision making of the manager.