Question

Problem 3: Vinbit Manufactured by Starr Company

The Starr Company has established a standard cost system for the manufacture of a single consumer product, which is branded under the name Vinbit. The standard costs of producing one Vinbit are 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 established a monthly flexible overhead budget as follows:

Flexible Overhead Budget:

Variable Charges - $.60 per direct labor hour

Fixed Charges - $5,000.00 per month

Budgeted Volume – 10,000 direct labor hours

The costs of operations to produce 4,500 Vinbits during May are stated below (there were no initial inventories):

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 overhead incurred $8,500

Fixed overhead incurred $6,000

Required:

Starr Company’s overhead is applied through the use of direct labor hours as the single cost driver. Utilizing this cost driver, what is the amount of budgeted volume, standard volume and actual volume?

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