Question

Scandia Coat Company makes women’s and men’s coats. Both products require filler and lining material. The following planning information has been made available: Standard Quantity Women’s Coats Men’s Coats Standard Price per Unit Filler 2.5 lbs. 4.0 lbs. $1.25 Liner 6.0 yds. 8.5 yds. 6.50 Standard labor time 0.30 hr. 0.45 hr. Planned production 4,500 units 5,000 units Standard labor rate $13.40 per hr. $14.80 per hr. Scandia Coat does not expect there to be any beginning or ending inventories of filler and lining material. At the end of the budget year, Scandia Coat experienced the following actual results: Women’s Coats Men’s Coats Actual production 4,300 5,500 Actual Price per Unit Actual Quantity Purchased and Used Filler $1.15 per lb. 31,950 Liner 6.80 per yd. 72,050 Actual Labor Rate Actual Labor Hours Used Woman’s Coat $13.25 per hr. 1,300 Man’s Coat 15.00 per hr. 2,425 The expected beginning inventory and desired ending inventory were realized. Instructions 1. Prepare the following variance analyses, based on the actual results and production levels at the end of the budget year: a. Direct materials price, quantity, and total variance. b. Direct labor rate, time, and total variance. 2. Why are the standard amounts in part (1) based on the actual production at the end of the year instead of the planned production at the beginning of the year?

Answer 1

1. Statement showing the Standard Cost per Unit:

Standard cost data for Women's Coats
Direct material : Fillers	2.50 lbs. @ $1.25 per lbs	$3.13
Direct material : Liner	6 yds. @ $6.50 per yds.	$39
Direct Labor	0.30 Hr. @ $13.40 per Hr.	$4.02
Standard cost per unit of Women's Coat		$46.15

Standard cost data for Men's Coats
Direct material : Fillers	4 lbs. @ $1.25 per lbs	$5
Direct material : Liner	8.50 yds. @ $6.50 per yds.	$55.25
Direct Labor	0.45 Hr. @ $14.80 per Hr.	$6.66
Standard cost per unit of Men's Coat		$66.91

2. Statement showing the standard cost for Actual Production:

Standard cost data for Women's Coats (4,300 units)
Direct material : Fillers	10,750 lbs. @ $1.25 per lbs	$13,438
Direct material : Liner	25,800 yds. @ $6.50 per yds.	$167,700
Direct Labor	1,290 Hrs. @ $13.40 per Hr.	$17,286
Standard cost for 4,300 units		$198,424

Standard cost data for Men's Coats (5,500 units)
Direct material : Fillers	22,000 lbs. @ $1.25 per lbs	$27,500
Direct material : Liner	46,750 yds. @ $6.50 per yds.	$303,875
Direct Labor	2,475 Hrs. @ $14.80 per Hr.	$36,630
Standard cost for 5,500 units		$368,005

3. Statement showing the Actual Cost data based on Actual Production of 4,300 units of Women's coats and 5,500 units of Men's coats:

Total Actual Quantity of Fillers (lbs.) purchased and used = 31,950 (lbs.)

Total Production (units) = 4,300 + 5,500 = 9,800 units

Actual Quantity of Fillers (lbs.) used for Women's coats = Total Quantity purchased x (Women's coat production / Total Production)

= 31,950 x (4,300 / 9,800) = 14,019 lbs.

Actual Quantity of Fillers (lbs.) used for Men's coats = Total Quantity purchased x (Men's coat production / Total Production)

= 31,950 x (5,500 / 9,800) = 17,931 lbs.

Total Actual Quantity of Liner (yds.) purchased and used = 72,050 (yds.)

Total Production (units) = 4,300 + 5,500 = 9,800 units

Actual Quantity of Liner (yds.) used for Women's coats = Total Quantity purchased x (Women's coat production / Total Production)

= 72,050 x (4,300 / 9,800) = 31,614 (yds.)

Actual Quantity of Liner (yds.) used for Men's coats = Total Quantity purchased x (Men's coat production / Total Production)

= 72,050 x (5,500 / 9,800) = 40,436 (yds)

Actual cost data for Women's Coats (4,300 units)
Direct material : Fillers	14,019 lbs. @ $1.15 per lbs	$16,122
Direct material : Liner	31,614 yds. @ $6.80 per yds.	$214,975
Direct Labor	1,300 Hrs. @ $13.25 per Hr.	$17,225
Actual Cost for 4,300 units		$248,322

Actual cost data for Men's Coats (5,500 units)
Direct material : Fillers	17,931 lbs. @ $1.15 per lbs	$20,621
Direct material : Liner	40,436 yds. @ $6.80 per yds.	$274,965
Direct Labor	2,425 Hrs. @ $15 per Hr.	$36,375
Actual cost of 5,500 units		$331,960

Direct material price variance = (Standard price - Actual price) x Actual quantity of DIrect material

Direct material price variance for Fillers of Women's Coat = ($1.25 - $1.15) x 14,019 = $1,402 (F) Favorable

Direct material price variance for Linear of Women's Coat = ($6.50 - $6.80) x 31,614 = $9,484 (A) Adverse

Direct material price variance for Fillers of Men's Coat = ($1.25 - $1.15) x 17,931 = $1,793 (F) Favorable

Direct material price variance for Linear of Men's Coat = ($6.50 - $6.80) x 40,436 = $12,131 (A) Adverse

Direct material quantity variance = (Standard quantity - Actual quantity) x Standard price per material

Direct material quantity variance of Fillers of Women's Coat = (10,750 - 14,019) x $1.25 = $4,086 (A) Adverse

Direct material quantity variance of Linear of Women's Coat = (25,800 - 31,614) x $6.50 = $37,791 (A) Adverse

Direct material quantity variance of Fillers of Men's Coat = (22,000 - 17,931) x $1.25 = $5,086 (F) Favorable

Direct material quantity variance of Linear of Men's Coat = (46,750 - 40,436) x $6.50 = $41,041 (F) Favorable

Total Direct material variance = Standard cost of Actual Production - Actual Cost

Total Direct material variance of Fillers Women's Coat = $13,438 - $16,122 = $2,684 (A) Adverse

Total Direct material variance of Linear Women's Coat = $167,700 - $214,975 = $47,275 (A) Adverse

Total Direct material variance of Fillers Men's Coat = $27,500 - $20,621 = $6,879 (F) Favorable

Total Direct material variance of Linear Men's Coat = $303,875 - $274,965 = $28,910 (F) Favorable

Direct labor rate variance = (Standard rate - Actual rate) x Actual labour hours

Direct labor rate variance for Women's Coat = ($13.40 - $13.25) x 1,300 Hrs. = $195 (F) Favorable

Direct labor rate variance for Men's Coat = ($14.80 - $15) x 2,425 Hrs. = $485 (A) Adverse

Direct labor time variance = (Standard labour hours - Actual labour hours) * Standard rate per labour hour

Direct labor time variance for Women's Coat = (1,290 - 1,300) x $13.40 = $134 (A) Adverse

Direct labor time variance for Men's Coat = (2,475 - 2,425) x $14.80 = $740 (F) Favorable

Total Direct Labor Variance = Standard labor cost for Actual production - Actual labor cost

Total Direct Labor Variance for Women's Coat = $17,286 - $17,225 = $61 (F) Favorable

Total Direct Labor Variance for Men's Coat = $36,630 - $36,375 = $255 (F) Favorable

Question part 2:

Why are the standard amounts in part (1) based on the actual production at the end of the year instead of the planned production at the beginning of the year?

Planned production are prepared at the beginning of the year which will vary when compared with the Actual Production achieved. To make the Standard quantities and prices to be reasonable, we should compare those level with the Actual production achieved during the year. If the Actuals and Standards are not having any differences with regard to quantities and prices then we can say that the planned production level is achieved.