(Comprehensive; all variances; all methods) Rainbow Painting Services Inc. paints interiors of residences and commercial structures. The firm’s management has established cost standards based on the amount of area to be painted.
Direct material ($18 per gallon of paint): $1.50 per 100 square feet
Direct labor: $2 per 100 square feet
Variable overhead: $0.60 per 100 square feet
Fixed overhead (based on 600,000 square feet per month): $1.25 per 100 square feet
Management has determined that 400 square feet can be painted by the average worker each hour. During May 2001, the company painted 600,000 square feet of wall and ceiling space. The following costs were incurred:
Direct material (450 gallons purchased and used) $ 8,550.00
Direct labor (1,475 hours) 12,242.50
Variable overhead 3,420.00
Fixed overhead 7,740.00
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.