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: 1.90 feet at $4.00 per foot $ 7.60 Actual: 1.85 feet at $4.40 per foot $ 8.14 Direct labor: Standard: 1.10 hours at $16.00 per hour 17.60 Actual: 1.15 hours at $15.40 per hour 17.71 Variable overhead: Standard: 1.10 hours at $9.00 per hour 9.90 Actual: 1.15 hours at $8.60 per hour 9.89 Total cost per unit $ 35.10 $ 35.74 Excess of actual cost over standard cost per unit $ 0.64 The production superintendent was pleased when he saw this report and commented: “This $0.64 excess cost is well within the 4 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 17,500 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 $0.64 excess unit cost is traceable to each of the variances computed in (1) above. 3. How much of the $0.64 excess unit cost is traceable to apparent inefficient use of labor time?

Answer 1

calculation of direct material price variance:

= (Standard price per unit of material - Actual price per unit of material) × Actual quantity

= ($4- $4.4 ) × 32375 = $12950 Unfavourable

Calculation of direct material quantity variance

=(standard quantity of material required for actual production - actual quantity used) × Standard price per unit

=((1.9*17500)-32375)*4=$3500 Favourable

* Actual Qty used = 1.85X17500=32375

Calculation of direct labor rate variance

= (Standard direct labor rate per hour - actual direct labor rate per hour) × Actual hours used

= ($16/hour - $15.40/hour) ×20125 Hours= $12075Favourable

Actual hour=17500*1.15=20125 Hour

Calculation of direct labor efficiency variance:

= (standard hours required for actual production - actual hours used) × standard Hourly Rate

= ((1.10 Hour × 17500 Unit) - 20125) × $16 = $14000 Unfavourable

Calculation of Variable OH rate variance

= (Standard rate per hour - actual rate per hour) × Actual Hour

= ($9/hour - $8.60/hour) × 20125 Hours= $8050 F

Calculation of Vaaariable OH efficiency variance:

= (standard hours required for actual production - actual hours used) × standard overhead rate

= ((1.10 Hour × 17500 Unit) - 20125) × $9 = $7875 Unfavourable

Part-2- Koontz Company
	Variance		Variance / Unit
Direct Material price Variance	$12,950.00	U	$0.74
Direct Material Quantity Avriance	$3,500.00	F	$0.20
Labour Rate Variance	$12,075.00	F	$0.69
Labour Efficiency Variance	$14,000.00	U	$0.80
Variable Overhead Rate Variance	$8,050.00	F	$0.46
Variablee Overhead Efficiency Variance	$7,875.00	U	$0.45
Total			$0.64

Part-3
Excess of Actual over Standard Cost per unit			0.64	Unfavourable
Less : portion attributable to labour effeciency
Direct Labour Effeciency Variance	0.8	Unfavourable
Variable Overhead Effeciency Variance	0.45	Unfavourable	1.25	Unfavourable
Portion due to Other variances			0.61	Favourable