In: Accounting
Fortes Inc. has provided the following data concerning one of the products in its standard cost system. Variable manufacturing overhead is applied to products on the basis of direct labor-hours.
Inputs | Standard Quantity or Hours per Unit of Output | Standard Price or Rate | |||||||||
Direct materials | 7.9 | ounces | $ | 8.00 | per ounce | ||||||
Direct labor | 0.5 | hours | $ | 25.70 | per hour | ||||||
Variable manufacturing overhead | 0.5 | hours | $ | 6.30 | per hour | ||||||
The company has reported the following actual results for the product for April:
Actual output | 7,500 | units | |
Raw materials purchased | 63,010 | ounces | |
Actual cost of raw materials purchased | $ | 379,910 | |
Raw materials used in production | 59,260 | ounces | |
Actual direct labor-hours | 3,440 | hours | |
Actual direct labor cost | $ | 92,520 | |
Actual variable overhead cost | $ | 21,034 | |
Required:
a. Compute the materials price variance for April.
b. Compute the materials quantity variance for April.
c. Compute the labor rate variance for April.
d. Compute the labor efficiency variance for April.
e. Compute the variable overhead rate variance for April.
f. Compute the variable overhead efficiency variance for April.
a. Computation of Direct material Price Variance
Direct material Price Variance = (Standard Price-Actual Price)*Actual Quantity purchased
Standard price per 1 ounce | A | $8.00 | |
Actual Price per 1 ounce | B =$379910/63,010 | $6.03 | |
Actual ounce Purchased | C | 63,010 | |
Direct material Price Variance | (A-B)*C | $124,170 | i.e. Favorable |
b. Computation of Direct material Quantity Variance
Direct material Quantity Variance = (Standard Quantity -Actual quantity used)*Standard Price
Standard Material of ounce for actual production | A = 7500 units * 7.9 ounce | 59,250 | |
Actual Ounce used | B | 59,260 | |
Standard Price per ounce | C | $8.00 | |
Direct material Quantity Variance | (A-B)*C | -$80 | i.e. Unfavorable |
c. Computation of Labor Rate Variance
Direct Labor Price Variance = (Standard Rate-Actual Rate)*Actual hours worked
Standard Rate per hour | A | $25.70 | |
Actual Rate per hour | B = $92,520/3440 | $26.90 | |
Actual hours worked | C | 3440 | |
Direct Labor Price Variance | (A-B)*C | -$4,112 | i.e. Unfavorable |
d. Computation of Labor Efficiency Variance
Direct labor Efficiency Variance = (Standard hours -Actual hours)*Standard Rate
Standard hours for actual production | A = 7500 units* 0.5 hours | 3,750 | |
Actual hours worked | B | 3,440 | |
Standard rate | C | $25.70 | |
Direct labor Quantity Variance | (A-B)*C | $7,967 | i.e. Favorable |
e. Computation of Variable Overhead Rate Variance
Variable Overhead Rate Variance = (Standard Rate-Actual Rate)*Actual Hours worked
Standard Rate | A | $6.30 | |
Actual Rate | B = $21,034/3,440 | $6.11 | |
Actual Hours worked | C | 3440 | |
Variable Overhead Rate Variance | (A-B)*C | $638 | i.e. Favorable |
f. Computation of Variable Overhead Efficiency Variance
Variable Overhead Efficiency Variance = (Standard hours -Actual hours)*Standard Rate
Standard hours for actual production | A = 7500 units* 0.5 hours | 3,750 | |
Actual hours worked | B | 3,440 | |
Standard rate | C | $6.30 | |
Variable Overhead Efficiency Variance | (A-B)*C | $1,953 | i.e.Favorable |