Question

1. Variances

Our company makes children’s tables.

Standards: For each table it requires 7 pounds of plastic each and takes 1.5 hours of DL. The standard cost of plastic is $3 per pound. Our standard labor rate is $12 per hour and our variable overhead rate is $1.50 per hour.

Actuals: This month we made 2,000 tables. We purchased 20,000 pounds of plastic for $65,000. We used 15,700 pounds of plastic to make these tables. We paid our employees $36,800 to work 3,200 DLH. The actual costs for variable overhead was $5,600.

Calculate the following:

Material Price Variance

Material Quantity Variance

Labor Rate Variance

Labor Efficiency Variance

Variable Overhead Spending Variance

Variable Overhead Efficiency Variance   

Answer 1

Answer)

Calculation of Variances

Resource	Standard	Actual
Quantity	Rate (in $)	Amount (In $)	Quantity	Rate (in $)	Amount (In $)
Material	14,000 Pounds	3.00	42,000	15,700 Pounds	3.25	51,025
Labor	3,000 Hours	12.00	36,000	3,200 Hours	11.50	36,800
Variable Overheads	3,000 Hours	1.50	4,500	3,200 Hours	1.75	5,600

Material variances:

Material Price variance = (Standard Price per pound – Actual Price per pound) X Actual Quantity of material used

                                                     = ($ 3.00 - $ 3.25) X 15,700 pounds

                                                      = $ 3,925 (Unfavorable)

Material Quantity variance = (Standard Quantity – Actual Quantity Consumed) X Standard Price per pound

                                                         = (14,000 pounds – 15,700 pounds) X $ 3.00 per pound

                                                         = $ 5,100 (Unfavorable)

Labor variances:

Labor rate variance = (Standard rate per hour – Actual rate per hour) X Actual labor hours worked

                                             = ($ 12.00 - $ 11.50) X 3,200 hours

                                             = $ 1,600 (Favorable)

Labor Efficiency variance = (Standard labor hours – Actual labor hours) X Standard labor rate per hour

                                                         = (3,000 hours – 3,200 hours) X $ 12.00 per labor hour

                                                         = $ 2,400 (Unfavorable)

Variable overhead variances:

Variable overhead Spending variance = (Standard variable overhead cost – Actual Variable overhead cost)

                                             = $ 4,500 - $ 5,600

                                             = $ 1,100 (Unfavorable)

Variable overhead Efficiency variance = (Standard labor hours – Actual labor hours) X Standard variable overhead Rate per hour

                                                         = (3,000 hours – 3,200 hours) X $ 1.75 per labor hour

                                                         = $ 300 (Unfavorable)

Working Notes:

Standard Material for Actual output = Standard Material per unit of output X Actual output

                                                                  = 7 pounds per table X 2,000 tables

                                                                  = 14,000 pounds

Standard labor hours for Actual output = Standard labor hours per unit of output X Actual output

                                                                  = 1.50 labor hours per table X 2,000 tables

                                                                  = 3,000 direct labor hours.

Standard Material Cost for actual output = Standard Material for Actual output X standard cost per pound of material

                                                                    = 14,000 pounds X $ 3.00 per pound

                                                                   = $ 42,000

Standard Labor Cost for actual output = Standard labor hours for Actual output X standard rate per labor hour

                                                                    = 3,000 hours X $ 12.00 per labor hour

                                                                   = $ 36,000

Standard Variable overhead Cost for actual output = Standard labor hours for Actual output X standard Variable overhead per labor hour

                                                                    = 3,000 hours X $ 1.50 per labor hour

                                                                   = $ 4,500

Actual Material cost per pound = Total Material cost/ Actual number of units purchased

                                                          = $ 65,000/20,000 pounds

                                                           =   $ 3.25 per pound

Actual Material Cost for actual output = Actual Material for Actual output X Actual cost per pound of material

                                                                    = 15,700 pounds X $ 3.25 per pound

                                                                   = $ 51,025

Actual Labor cost per hour = Total Labor cost/ Actual number of labor hours worked

                                                          = $ 36,800/3,200 labor hours

                                                         = $ 11.50 per labor hour.

Actual variable overhead cost per hour = Total Variable overhead cost/ Actual number of labor hours worked

                                                          = $ 5,600/3,200 labor hours

                                                         = $ 1.75 per labor hour.