Question

Koontz Company manufactures a number of products. The standards relating to one of these products are shown below, along with actual cost data for May.

	Standard Cost per Unit						Actual Cost per Unit
Direct materials:
Standard: 1.90 feet at $3.00 per foot	$	5.70
Actual: 1.85 feet at $3.40 per foot							$	6.29
Direct labor:
Standard: 1.00 hours at $18.00 per hour		18.00
Actual: 1.05 hours at $17.40 per hour								18.27
Variable overhead:
Standard: 1.00 hours at $8.00 per hour		8.00
Actual: 1.05 hours at $7.60 per hour								7.98
Total cost per unit	$	31.70					$	32.54
Excess of actual cost over standard cost per unit				$	0.84

The production superintendent was pleased when he saw this report and commented: “This $0.84 excess cost is well within the 4 percent limit management has set for acceptable variances. It's obvious that there's not much to worry about with this product."

Actual production for the month was 15,000 units. Variable overhead cost is assigned to products on the basis of direct labor-hours. There were no beginning or ending inventories of materials.

Required:

1. Compute the following variances for May:

a. Materials price and quantity variances.

b. Labor rate and efficiency variances.

c. Variable overhead rate and efficiency variances.

2. How much of the $0.84 excess unit cost is traceable to each of the variances computed in (1) above.

3. How much of the $0.84 excess unit cost is traceable to apparent inefficient use of labor time?

Answer 1

Answer-1-

Material Price Variance	(Standard Price – Actual Price) x Actual Quantity = ($ 3.00 - $ 3.40)* 1.85 feet per unit *15,000 units = (-0.40)*27750 feet = 11,100 (Unfavorable)
Material Quantity Variance	(Standard Quantity – Actual Quantity) x Standard Price = [(15000 units * 1.90 feet per unit) – (15000 units * 1.85 feet per unit)] * $ 3.00 per feet = [28500 feet – 27750 feet]* 3.00 per feet = 750 feet *3.00 per feet = 2250 (favorable)
Labour Rate Variance	(Standard Rate – Actual Rate) * Actual Time Taken = (18.00 per hour – 17.40 per hour) * 1.05 hours per unit * 15000 units = 0.60 per hour * 15750 hours = 9450 (favorable)
Labour Efficiency Variance	(Standard Time for Actual Output – Actual Time paid for) * Standard Rate =[(1.00 hours per unit * 15000 units) – (1.05 hour per unit * 15000 units)] * 18.00 per hour = [ 15000 hours – 15750 hours ] * 18.00 per hour = 13500 (Unfavorable)
Variable overhead rate Variance	(Standard Rate – Actual Rate) * Actual Time = (8.00 per hour – 7.60 per hour) * 1.05 hours per unit * 15000 units =0.40 per hour * 15750 hours = 6300 (favorable)
Variable Overhead efficiency Variance	(Standard Time for Actual Output – Actual Time)* Stdandard Rate =[(1.00 hours per unit * 15000 units) – (1.05 hour per unit * 15000 units)] * 8.00 per hour = [ 15000 hours – 15750 hours ] * 8.00 per hour = 6000 (Unfavorable)

Answer 2:

Materials:
	Price Variance	0.74	U
	Quantity Variance	0.15	F	0.59	U
Labor:
	Rate Variance	0.63	F
	Efficiency Variance	0.9	U	0.27	U
Variable Overhead:
	Rate Variance	0.42	F
	Efficiency Variance	0.4	U	0.02	F
Excess of actual over standard cost per unit	0.84	U

Note: Divide all the variances by 15000 so you can get variance per unit.

Answer 3:

Excess of actual over standard cost per unit			0.84	U
Less: Portion attributable to labor efficiency:
Labour Efficiency Variance	0.9	U
Variable Overhead efficiency Variance	0.4	U	1.3	U
Portion due to other variances			0.46	F