Sterling Company_standard cost system



The Sterling Company uses a standard cost system in which manufacturing
overhead costs are applied to the units of the company’s single product on the
basis of direct labor-hours (DLHs). The
standard cost card for the product follows:

Standard Cost Card-per
unit of product:

Direct materials, 4 yards at $3.50 per
yard $14

Direct labor, 1.5 DLHs at $8 per DLH 12

Variable overhead, 1.5 DLHs at $2 per

Fixed overhead, 1.5 DLHs at $6 per DLH 9

The following data pertain to last
year’s activities:

The company manufactured 18,000 units of product during the year.

A total of 70,200 yards of
material was purchased during the year at a cost of $3.75 per yard. All of this material was used to manufacture
the 18,000 units.

The company worked 29,250 direct labor hours during the year at a cost
of $7.80 per hour.

The denominator activity level was 22,500 direct labor hours.

Budgeted fixed manufacturing overhead costs were $135,000 while actual
manufacturing overhead costs were $133,200.

Actual variable manufacturing overhead costs were $61,425.

Required (15

a. Compute the direct
materials price and quantity variances for the year.

b. Compute the direct labor
rate and efficiency variances for the year.

c. Compute the variable
overhead spending and efficiency variances for the year.

d. Compute the fixed overhead
budget and volume variances for the year.

e. Discuss some possible
reasons for the direct labor variances that you computed.


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