Question

Question 3

• Time: 30 minutes

• Total: 18 marks

Orville Company’s standard and actual costs per unit are provided below for the most recent period. During this time period 1300 units were actually produced.

Standard

Actual

Materials:

Standard: 2.6 metres at $2.30 per m.

$5.98

Actual: 2.1 metres at $2.60 per m.

$5.46

Direct labour:

Standard: 2.2 hrs. at $7.90 per hr.

17.38

Actual: 1.7 hrs. at $8.50 per hr.

14.45

Variable overhead:

Standard: 2.2 hrs. at $4.60 per hr.

10.12

Actual: 1.7 hrs. at $4.20 per hr.

7.14

Total unit cost

$33.48

$27,05

For simplicity, assume there was no inventory of materials at the beginning or end of the period.

Required:

Given the information above, compute the following variances. Also indicate if the variances are favorable or unfavorable.

5. Materials price variance​​​​​​​

6. Materials quantity variance​​​​​​

7. Direct labour rate variance​​​​​​

8. Direct labour efficiency variance​​​​​​

9. Variable overhead efficiency variance​​​​​

6. Variable overhead spending variance

Answer 1

5) Material Price Variance = (Standard Price - Actual Price)*Actual Quantity used

Actual Quantity used = 1,300 units*2.1 metres per unit = 2,730 metres

Standard Price = $2.30 per metre

Actual Price = $2.60 per metre

Material Price Variance = ($2.30 - $2.60)*2,730 = $819 Unfavorable

6) Material Quantity Variance = (Standard Quantity - Actual Quantity)*Standard Price

Standard Quantity for Actual Production = 1,300 units*2.6 metres per unit = 3,380 metres

Actual Quantity used = 2,730 metres

Standard Price = $2.30 per metre

Material Quantity Variance = (3,380 - 2,730)*$2.30 = $1,495 Favorable

7) Direct Labor Rate Variance = (Standard rate - Actual rate)*Actual labor hours used

Actual labor hours used = 1,300 units*1.7 hrs = 2,210 hrs

Standard rate per hour = $7.90 per hour

Actual rate per hour = $8.50 per hour

Direct Labor Rate Variance = ($7.90 - $8.50)*2,210 = $1,326 Unfavorable

8) Direct Labor Efficiency Variance = (Standard Hours - Actual hours)*Standard rate

Standard hours for Actual production = 1,300 units*2.2 hrs = 2,860 hrs

Direct Labor Efficiency Variance = (2,860 - 2,210)*$7.90 = $5,135 Favorable

9) Variable Overhead Efficiency Variance = (Standard Hours - Actual Hours)*Standard variable overhead rate

= (2,860 - 2,210)*$4.60 per hour = 2,990 Favorable

10) Variable Overhead Spending Variance = (Standard VOH rate - Actual VOH rate)*Actual hours

= ($4.60 - $4.20)*2,210 hrs = $884 Favorable