Question

Actual production for the month was 12,000 units. Variable overhead cost is assigned to products on the basis of direct labor-hours. There were no beginning or ending inventories of materials. Required: Compute the following variances for May: a. Materials price and quantity variances. b. Labor rate and efficiency variances. c. Variable overhead rate and efficiency variances.

Answer 1

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Answer:

A

Material price variance is $6,480 U and material quantity variance is $0.

B

Labor rate variance is $5,520 F and labor efficiency variance is $4,320 U.

C

Variable overhead rate variance is $5,520 F and variable overhead efficiency variance is $1,200 U.

Concepts and reason

Variance: In simple terms, variance is the difference between expectation and reality. In standard costing, variance means difference between standard value and actual value. It is a useful tool in the hands of management to monitor and control the cost incurred by it.

Fundamentals

Material price variance: Material price variance is calculated by multiplying actual material consumed by difference between standard price and actual price of per unit of material. Actual material consumed is calculated by multiplying material required for per unit of output by total production.

Material quantity variance: Material quantity variance is calculated by multiplying standard rate of material for per unit of output by difference between standard quantity of material used for actual production and actual material consumed. Standard quantity of material used for actual production can be arrived at after multiplying standard quantity required for per unit of output by actual production.

Labor rate variance: It is calculated by multiplying actual hours by difference between actual rate and standard rate.

Labor efficiency variance: It is calculated by multiplying standard rate by difference between standard hours required for actual production and actual hours. Standard hours required for actual production can be arrived at after multiplying standard hours required for per unit of output by actual production.

Variable overhead rate variance: It is calculated by multiplying actual hours by difference between standard rate and actual rate.

Step by Step Explanation:

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