| Hayes Chemical Company produces a chemical used in dry cleaning. Its accounting system uses standard costs. Standards for each 0.5-gallon can of chemical and actual data for Hayes Chemical follow: |
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| | | Standards and budgeted information: | | | | |
| | | Gallons of material per can of chemical | | 1.20 | |
| | | Hours of labor per can of chemical | | | 1.50 | |
| | | Standard cost per gallon of material | | | $6.00 | |
| | | Standard cost per hour of labor | | | $9.00 | |
| | | Overhead application rate per can | | | $7.75 | |
| | | Expected production - cans of chemical | | 20,000 | |
| | | Expected fixed overhead per year | | | $55,000 | |
| | | Variable overhead rate per 0.5-gallon can | | $5.00 | |
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| | | Actual information for 2018: | | | | | |
| | | Cans produced | | | | | 23,000 | |
| | | Gallons of material purchased | | | | 35,000 | |
| | | Cost of material purchased | | | | $250,000 | |
| | | Gallons of material used in production | | 30,000 | |
| | | Cost of direct labor incurred | | | | $290,000 | |
| | | Average wage rate per hour | | | | $8.25 | |
| | | Actual overhead cost | | | | $220,000 | |
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| Required | | | | | | | |
| a. Determine the standard cost per unit. | | | | | |
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| | Material | | $1.20 | | 6.00 | = | $ 7.20 | |
| | Labor | | $1.50 | | $9.00 | = | 13.50 | |
| | Variable overhead | | 5 | | 5 | 5.00 | |
| | Fixed overhead | $55,000 | | 20,000 | = | 2.75 | |
| | Total unit cost | | | | | $ 28.45 | |
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| b. Calculate the material, labor, and overhead standards. | | | |
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| | Material price variance | | | | | | |
| | | | 250000 | | | = | | |
| | | | Favorable or unfavorable? | | | |
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| | Material quantity variance | | | | | | |
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| | | | Favorable or unfavorable? | | | |
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| | Labor rate variance | | | | | | |
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| | | | Favorable or unfavorable? | | | |
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| | Labor efficiency variance | | | | | | |
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| | | | Favorable or unfavorable? | | | |
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| | Overhead controllable variance | | | | | |
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| | | | Favorable or unfavorable? | | | |
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| | Overhead volume variance | | | | | | |
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| | | | Favorable or unfavorable? | | | |
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| c. List a possible cause for each variance. | | | | | |
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| | Unfavorable Material Price Variance: | | | | | |
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| | Unfavorable Material Quantity Variance: | | | | | |
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| | Favorable Labor Rate Variance: | | | | | |
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| | Unfavorable Labor Efficiency Variance: | | | | | |
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| | Unfavorable Controllable Overhead Variance: | | | | |
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| | Favorable Overhead Volume Variance: | | | | | |
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