Question

Koontz Company manufactures a number of products. The standards relating to one of these products are shown below, along with actual cost data for May.
Standard Cost per Unit Actual Cost per Unit
Direct materials:
Standard: 1.80 feet at $1.60 per foot $ 2.88
Actual: 1.75 feet at $2.00 per foot $ 3.50
Direct labor:
Standard: 0.90 hours at $18.00 per hour 16.20
Actual: 0.95 hours at $17.40 per hour 16.53
Variable overhead:
Standard: 0.90 hours at $6.00 per hour 5.40
Actual: 0.95 hours at $5.60 per hour 5.32
Total cost per unit $ 24.48$ 25.35
Excess of actual cost over standard cost per unit $ 0.87
The production superintendent was pleased when he saw this report and commented: "This $0.87 excess cost is well within the 5 percent limit management has set for acceptable variances. It's obvious that there's not much to worry about with this product."
Actual production for the month was 11,500 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:
1. 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.
2. How much of the $0.87 excess unit cost is traceable to each of the variances computed in (1) above.
3. How much of the $0.87 excess unit cost is traceable to apparent inefficient use of labor time?

Answer 1

Answer:

1.  a. The Material price variance is $8,050 U

        The Material quantity variance is $920 F

   b. The Labor rate variance is $6,555 F

       The Labor efficiency variance is $10,350 U

   c. The Variable overhead rate variance is $4,370 F

        The Variable overhead efficiency variance is $3,450 U

2. Excess of actual cost over standard cost per unit is $12,600.00 U

3. Portion due to other variances is $1,200.00 F

Explanation:

1. a. To calculate the Materials price and quantity variances we would have to use the following formula:

Material price variance = (SP - AP) * AQ = ($1.60 - $2) * (11,500*1.75) = $8,050 U

Material quantity variance = (SQ - AQ) * SP = (11,500*1.80 - 11,500*1.75) * $1.60= $920 F

b. To calculate the Labor rate and efficiency variances we would have to use the following formula:

Labor rate variance = (SR - AR) * AH = ($18 - $17.40) *(11,500*0.95) = $6,555 F

Labor efficiency variance = (SH - AH) * SR = (11,500*0.90 - 11,500*0.95) * $18 = $10,350 U

c. To calculate the Variable overhead rate and efficiency variances we would have to use the following formula:

Variable overhead rate variance = (SR - AR) * AH = ($6 - $5.60) * (11,500*0.95) = $4,370 F

Variable overhead efficiency variance = (SH - AH) * SR = (11,500*0.90 - 11,500*0.95) * $6 = $3,450 U

2.  

Variance  

Materials:    

Price Variance $8,050            U  

Quantity Variance $920.00          F $7,130.00 U

Labor:    

Rate variance        $6,555.00 F  

Efficiency varianc $10,350.00 U $6,390.00 U

Variable overhead:    

Rate variance       $4,370.00 F  

Efficiency variance$3,450.00 U $920.00         F

Excess of actual cost over standard cost per unit   $12,600.00 U

3.

Variance  

Excess of actual over standard                                                $12,600.00 U

cost per unit  

Less: Portion attributable to labor efficiency:    

Labor Efficiency variance                        $10,350.00 U  

Variable overhead Efficiency variance $3,450.00  U     $13,800.00 U

Portion due to other variances                                $1,200.00 F