Question

The Starr Company has established a standard cost systemfor the manufacture of a single consumer product, which is brandedunder the name Vinbit. The standard costs of producing one Vinbitare shown below:

Standard Cost Card:

Direct Materials: 20 pounds @ $.30 $6.00

Direct Labor: 3 hours @$15.00 $45.00

At the beginning of the year, Starr Company establisheda monthly flexible overhead budget as follows:

Flexible Overhead Budget:

Variable Charges - $.60 per direct laborhour

Fixed Charges - $5,000.00 per month

Budgeted Volume – 10,000 direct laborhours

The costs of operations to produce 4,500 Vinbits duringMay are stated below (there were no initialinventories):

Actual Costs:

Materials purchased: 110,000 pounds @$.31 $34,100

Materials used: 105,000 pounds

Direct Labor: 13,750 hours @$15.20 $209,000

Variable overheadincurred $8,500

Fixed overheadincurred $6,000

1. Starr Company’s overhead is applied through the useof direct labor hours as the single cost driver. Utilizing thiscost driver, what is the amount of budgeted volume, standard volumeand actual volume?

2. Prepare a calculation of the overhead efficiency,volume and spending variances for the month of May.