Calculating Labor and Overhead Variances [LO 3,4]At the start of 2012, Textile Express Company determined its standard labor cost to be 2.5 hours per unit at $33.90 per hour. The budget for variable overhead was $8 per unit, and budgeted fixed overhead was $15,000 for the year. Expected annual production was 5,000 units. During 2012, the actual cost of labor was $34.30 per hour. Textile Express produced 4,840 units requiring 11,700 direct labor hours. Actual overhead for the year was $50,290.

Calculate labor rate and efficiency variances and the controllable overhead variance and the overhead volume variance. (Round calculations to 2 decimal places, e.g. 25.21 and the final answers to 0 decimal places, e.g. 5,250. For negative numbers use either a negative sign preceding the number, e.g. -45 or parenthesis, e.g. (45).)

Labor Rate Variance = $ ________ unfavorable or favorable
Labor Efficiency Variance = $_________ favorable or unfavorable
Controllable Overhead Variance = $________ favorable or unfavorable
Overhead Volume Variance = $_______ unfavorable ot favorable

P11-12

Setting Standards and Assigning Responsibility for Variances [LO 1]

Recycled Plastics, Inc. manufactures a plastic dimensional lumber product from recycled plastic milk jugs. The company purchases consumer-recycled milk jugs in 700-pound bales and then shreds them into small pieces in its grinding department. Once ground, the plastic pieces are mixed in a hopper and extruded into shaped boards in the extrusion department. When the boards are cooled, they are used much as wood lumber would be used to build picnic tables and park benches in the fabrication department.

Recycled Plastics, Inc. has grown from a small 5-person operation to a company employing more than 100 people. The company also contains a sales department, an accounting department, an administration department, and a purchasing department. The president and owner of the company, Alan Roberts, would like to institute a standard cost system; at this point, he has been setting prices based on his rough pen-and-paper estimates of costs.

What standards could be set within each of the three production departments of the company? How should standards be set? Who should be involved in setting the standards?

What benefits might Recycled Plastics, Inc. receive from adopting a standard costing system? What disadvantages or problems might arise from adopting a standard costing system?