Question
In: Accounting
Problem 10-13 Basic Variance Analysis; the Impact of Variances on Unit Costs [LO10-1, LO10-2, LO10-3] Koontz...
Problem 10-13 Basic Variance Analysis; the Impact of Variances on Unit Costs [LO10-1, LO10-2, LO10-3]
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 $3.00 per foot | $ |
5.70 |
||||||
| Actual: 1.85 feet at $3.40 per foot | $ | 6.29 | ||||||
| Direct labor: | ||||||||
| Standard: 1.00 hours at $18.00 per hour |
18.00 |
|||||||
| Actual: 1.05 hours at $17.40 per hour | 18.27 | |||||||
| Variable overhead: | ||||||||
| Standard: 1.00 hours at $8.00 per hour | 8.00 | |||||||
| Actual: 1.05 hours at $7.60 per hour | 7.98 | |||||||
| Total cost per unit | $ |
31.70 |
$ | 32.54 | ||||
| Excess of actual cost over standard cost per unit | $ | 0.84 | ||||||
The production superintendent was pleased when he saw this report and commented: “This $0.84 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 15,000 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:
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 $0.84 excess unit cost is traceable to each of the variances computed in (1) above.
3. How much of the $0.84 excess unit cost is traceable to apparent inefficient use of labor time?
Solutions
Expert Solution
| MATERIAL | ||||||||
| PRICE VARIANCE | ||||||||
| ACTUAL PRICE (PER FOOT) | (A) | $ 3.40 | ||||||
| STANDARD PRICE (PER FOOT) | (B) | $ 3.00 | ||||||
| VARIANCE | C = (A-B) | $ 0.40 | ||||||
| ACTUAL QUANTITY (FOOT) (15000 X 1.85) | D | 27,750.00 | ||||||
| DIRECT MATERIAL PRICE VARIANCE | C X D | $ 11,100.00 | UNFAVORABLE | |||||
| QUANTITY VARIANCE | ||||||||
| ACTUAL QUANTITY (FOOT) (15000 X1.85) | (A) | 27,750.00 | ||||||
| STANDARD QUANTITY (FOOT) ( 15000 X1.9) | (B) | 28,500.00 | ||||||
| VARIANCE | C = (A-B) | $ (750.00) | ||||||
| STANDARD PRICE (PER FOOT) | D | $ 3.00 | ||||||
| QUANTITY VARIANCE | C X D | $ (2,250.00) | FAVORABLE | |||||
| LABOUR COST | ||||||||
| RATE VARIANCE | ||||||||
| ACTUAL RATE PER HOUR | (A) | $ 17.40 | ||||||
| STANDARD RATE PER HOUR | (B) | $ 18.00 | ||||||
| VARIANCE | C = (A-B) | $ (0.60) | ||||||
| ACTUAL HOUR (15000 X1.05) | D | 15,750.00 | ||||||
| DIRECT LABOUR VARIANCE | C X D | $ (9,450.00) | FAVORABLE | |||||
| EFFICIENCY VARIANCE | ||||||||
| ACTUAL DIRECT LABOUR HOUR (15000 X1.05) | (A) | 15,750.00 | ||||||
| STANDARD DIRECT LABOUR HOUR (15000 X1) | (B) | 15,000.00 | ||||||
| VARIANCE | C = (A-B) | $ 750.00 | ||||||
| STANDARD RATE PER HOUR | D | $ 18.00 | ||||||
| TIME VARIANCE | C X D | $ 13,500.00 | UNFAVORABLE | |||||
| VARIABLE OVERHEAD RATE VARIANCE | ||||||||
| ACTUAL RATE PER HOUR | (A) | $ 7.60 | ||||||
| STANDARD RATE PER HOUR | (B) | $ 8.00 | ||||||
| VARIANCE | C = (A-B) | $ (0.40) | ||||||
| ACTUAL HOUR (15000 X1.05) | D | 15,750.00 | ||||||
| VARIABLE OVERHEAD VARIANCE | C X D | $ (6,300.00) | FAVORABLE | |||||
| VARIABLE OVERHEAD EFFICIENCY VARIANCE | ||||||||
| ACTUAL DIRECT LABOUR HOUR (15000 X1.05) | (A) | 15,750.00 | ||||||
| STANDARD DIRECT LABOUR HOUR (15000 X1) | (B) | 15,000.00 | ||||||
| VARIANCE | C = (A-B) | 750.00 | ||||||
| STANDARD RATE PER HOUR | D | $ 8.00 | ||||||
| VOH EFFICIENCY VARIANCE | C X D | $ 6,000.00 | UNFAVORABLE | |||||
| PER UNIT RATE (DIVIDE BY 15000) | ||||||||
| MATERIAL PRICE VARIANCE | $ 11,100.00 | UNFAVORABLE | $ 0.74 | |||||
| MATERIAL QUANTITY VARIANCE | $ (2,250.00) | FAVORABLE | $ (0.15) | |||||
| LABOUR RATE VARAINCE | $ (9,450.00) | FAVORABLE | $ (0.63) | |||||
| LABOUR EFFICIENCY VARIANCE | $ 13,500.00 | UNFAVORABLE | $ 0.90 | |||||
| VARIABLE OVERHEAD RATE VARIANCE | $ (6,300.00) | FAVORABLE | $ (0.42) | |||||
| VARIABLE OVERHEAD EFFICIENCY VARIANCE | $ 6,000.00 | UNFAVORABLE | $ 0.40 | |||||
| TOTAL | $ 12,600.00 | $ 0.84 | ||||||
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Standard Quantity
or Hours
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or Rate
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Direct materials
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