Materials, labor, and overhead variances—two-variance methodFargo Company manufactures products in...

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Materials, labor, and overhead variances—two-variance method

Fargo Company manufactures products in batches of 100 units per batch. The company uses a standard cost system and prepares budgets that call for 500 of these batches per period. Fixed overhead is $60,000 per period. The standard costs per batch follow:

Material (80 gallons)	$32
Labor (60 hours)	480
Factory overhead	252
Standard cost per batch	$764

During the period, 503 batches were manufactured, and the following costs were incurred:

Materials used (40,743 gallons)	$15,482.34
Labor (29,677 hours at $865 per hour)	256,706.05
Actual variable overhead	67,080.00
Actual fixed overhead	60,500.00

Required:

Calculate the variances for materials, labor, and overhead. For overhead, use the two-variance method.

David · Accepted Answer

Material price variance = ( standard rate – actual rate ) actual quantity  
=(32*503)- 15482.34 = 16096- 15482.34 = 613.66 favourable. 
 
material usage variance = ( standard quantity – actual quantity ) standard rate  
= [(80*503)-40743] 32/80= 201.2 unfavourable.

Materials, labor, and overhead variances—two-variance method Fargo Company manufactures products in batches of 100 units per batch. The company uses a standard cost system and prepares budgets that...

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