In: Accounting
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
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 |