Hellier Contractors paints interiors of residences and commercial structures. The firm’s management has established cost standards per 100 square feet of area to be painted.
Direct material ($18 per gallon of paint) …………………………$1.50
Direct labor ………………………………………………………. 2.00
Variable overhead ……………………………………………….. 0.60
Fixed overhead (based on 600,000 square feet per month)……….. 1.25
Management has determined that 400 square feet can be painted by the average worker each hour. During May, the company painted 600,000 square feet of space and incurred the following costs:
Direct material (450 gallons purchased and used) ………………..$8,300.00
Direct labor (1,475 hours) ……………………………………….12,242.50
Variable overhead ……………………………………………….. 3,480.00
Fixed overhead ………………………………………………….. 7,720.00
a. Compute the direct material variances.
b. Compute the direct labor variances.
c. Use a four-variance approach to compute overhead variances.
d. Use a three-variance approach to compute overhead variances.
e. Use a two-variance approach to compute overhead variances.
f. Reconcile your answers for parts (c) through (e).
g. Discuss other cost drivers that could be used as a basis for measuring activity and computing variances for this company.