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problem: Western Company manufactures special electrical machine and parts. The company uses a standard cost system with separate standards established for every product.

The transformer department manufactures a special transformer. This department measures production volume in direct labor hours & uses a flexible budget system to plan & control department overhead costs.

Standard costs for the special transformers are determined yearly in September for the coming year. The standard value of a transformer at its DeCatur plant for the year just completed is $67 per unit, as shown here:

Direct Materials




5 Sheets X $2



3 Spools X $3


Direct Labor

4 hours X $7


Variable Overhead

4 hours X $3


Fixed Overhead

4 hours X $2





Overhead rates were based on practical capacity of 4000 direct labor hours per month. Variable overhead costs are expected to vary with the number of Direct labor hours actually used. During October, the plant produced 800 transformers. This number was below expectations because a work stoppage occurred during labor contract negotiations. When the contract was settled, the department scheduled overtime in an attempt to reach expected production levels. The following costs were incurred in October.

Direct Material
Iron Purchased 5000 sheets at $2/sheet and used 3900 sheets
Copper Purchased 2200 spolls at 3.10/spool and used 2600 spools

Direct Labor
Regular Time: 2000 hours at $7.00 and 1400 hours at $7.20
Overtime 600 of the 1400 hours were subject to overtime premium. The total overtime premium of $2160 is included in variable overhead in accordance with company accounting practices

Factory Overhead
Variable $12,000
Fixed $8,800

[A] find out total direct materials price variance
[B] find out total direct usage variance
[C] Determine the variable overhead spending variance
[D] Determine the variable overhead efficiency variance
[E] Determine the budget (spending) variance for fixed overhead
[F] Determine the production volume variance
[G] Determine the most appropriate time to record any variance of actual materials prices from standard? describe?
[H] Determine the total direct labor rate (price) variance 
[I] Determine the total direct labor efficiency variance

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  • Category:- Accounting Basics
  • Reference No.:- M921771

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