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Question 3 • Time: 30 minutes • Total: 18 marks Orville Company’s standard and actual costs...

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 1400 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.

1. Materials price variance






2. Materials quantity variance

3. Direct labour rate variance


4. Direct labour efficiency variance


5. Variable overhead efficiency variance

6.        Variable overhead spending variance                                                                           

Solutions

Expert Solution

1,2

Direct material variances
Particulars Amount
Standard price per unit of raw material $                  2.30
Less: actual price per unit of raw material $                  2.60
Price variance per unit of raw material $                 (0.30)
× units of raw materials purchased                     5,040
Direct material price variance $              (1,512)
Particulars Per one unit of output × actual output Total
Standard raw materials units required per unit of output                       2.60               1,400.00               3,640.00
Less: actual raw materials units used                       2.10               1,400.00               2,940.00
Difference in raw materia units used                  700.00
× standard price per unit of raw material $                  2.30
Direct material quantity variance                           -   $          1,610.00
Summary
Particulars Amount Nature
Materials quanity variance $           1,610.00 Favorable
Materials price variance $         (1,512.00) Unfavorable
Total material variance $                98.00

3,4

Direct labor variances
Particulars Amount
Standard rate per direct labor hour $                    7.90
Less: actual rate per direct labor hour $                    8.50
Rate variance per diret labor hour $                  (0.60)
× direct labor hours worked                      2,380
Direct labor rate variance $          (1,428.00)
Particulars Hours per unit × actual output Total
Standard direct labor hours required for actual output                        2.20              1,400           3,080.00
Less: actual direct labor hours worked for actual output                        1.70        1,400.00           2,380.00
Difference in direct labor hours              700.00
× standard rate per hour of direct labor hour $               7.90
Direct labor efficiency variance                             -   $       5,530.00
Summary
Particulars Amount Nature
Direct labor efficiency variance $            5,530.00 Favorable
Direct labor rate variance $           (1,428.00) Unfavorable
Total direct labor variance $            4,102.00 Favorable

5,6

Variable overhead variances
Particulars Amount
Standard rate per hour $               4.60
Less: actual rate per hour $               4.20
Rate variance per hour $               0.40
× hours worked $       2,380.00
Variable overhead rate variance $          952.00
Particulars Hours per unit × actual output Total
Standard hours required for actual output                   2.20       1,400.00           3,080.00
Less: actual hours worked for actual output           2,380.00
Difference in hours              700.00
× standard rate per hour $               4.60
Variable overhead efficiency variance                       -   $       3,220.00
Summary
Particulars Amount Nature
Variable overhead efficiency variance $       3,220.00 Favorable
Variable overhead rate variance $          952.00 Favorable
Total variabel overhead spending variance $       4,172.00 Favorable

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