In: Accounting
Landers 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: 1.80 feet at $4.00 per foot | $ | 7.20 | ||||
Actual: 1.75 feet at $4.20 per foot | $ | 7.35 | ||||
Direct labor: | ||||||
Standard: 0.40 hours at $18.00 per hour | 7.20 | |||||
Actual: 0.45 hours at $17.40 per hour | 7.83 | |||||
Variable overhead: | ||||||
Standard: 0.40 hours at $3.00 per hour | 1.20 | |||||
Actual: 0.45 hours at $2.60 per hour | 1.17 | |||||
Total cost per unit | $ | 15.60 | $ | 16.35 | ||
Excess of actual cost over standard cost per unit | $ | 0.75 | ||||
The production superintendent was pleased when he saw this report and commented: "This $0.75 excess cost is well within the 6 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 14,000 units. Variable overhead cost is assigned to products on the basis of direct labour-hours. There were no beginning or ending inventories of materials. |
Required: |
1. | Compute the following variances for May: |
a. |
Materials quantity and price variances. (Input all amounts as positive values. Leave no cells blank - be certain to enter "0" wherever required. Indicate the effect of each variance by selecting "F" for favorable, "U" for unfavorable, and "None" for no effect (i.e., zero variance.) |
b. |
Labour efficiency and rate variances. (Input all amounts as positive values. Leave no cells blank - be certain to enter "0" wherever required. Indicate the effect of each variance by selecting "F" for favorable, "U" for unfavorable, and "None" for no effect (i.e., zero variance.) |
c. |
Variable overhead efficiency and rate variances. (Input all amounts as positive values. Leave no cells blank - be certain to enter "0" wherever required. Indicate the effect of each variance by selecting "F" for favorable, "U" for unfavorable, and "None" for no effect (i.e., zero variance.) |
2. |
How much of the $0.75 excess unit cost is traceable to each of the variances computed in (1) above. (Input all amounts as positive values. Leave no cells blank - be certain to enter "0" wherever required. Round your answers to 2 decimal places. Indicate the effect of each variance by selecting "F" for favorable, "U" for unfavorable, and "None" for no effect (i.e., zero variance.) |
3. |
How much of the $0.75 excess unit cost is traceable to apparent inefficient use of labour time? (Input all amounts as positive values. Leave no cells blank - be certain to enter "0" wherever required. Do not round intermediate calculations. Round your final answers to 2 decimal places. Indicate the effect of each variance by selecting "F" for favorable, "U" for unfavorable, and "None" for no effect (i.e., zero variance.) |
Solution 1a:
Material price variance = (SP - AP) * AQ = (4 -4.20) * (14000*1.75) = $4,900 U
Material quantity variance = (SQ - AQ) * SP = (14000*1.80 - 14000*1.75) * 4 = $2,800 F
Solution 1b:
Direct labor rate variance = (SR - AR) * AH = ($18 - $17.40) * (14000*0.45) = $3,780 F
Direct labor efficiency variance = (SH - AH) * SR = (14000*0.40 - 14000*0.45) * $18 = $12,600 U
Solution 1c:
Variable overhead rate variance = (SR - AR) * AH = ($3- $2.60) * (14000*0.45) = $2,520 F
Variable overhead efficiency variance = (SH - AH) * SR = (14000*0.40 - 14000*0.45) * $3 = $2,100 U
Solution 2:
Statement showing Excess unit cost traceable to variance - Koontz Company | ||||
Variance | ||||
Materials: | ||||
Price Variance | $0.35 | U | ||
Quantity Variance | $0.20 | F | $0.15 | U |
Labor: | ||||
Rate variance | $0.27 | F | ||
Efficiency variance | $0.90 | U | $0.63 | U |
Variable overhead: | ||||
Rate variance | $0.18 | F | ||
Efficiency variance | $0.15 | U | $0.03 | F |
Excess of actual cost over standard cost per unit | $0.75 | U |
Solution 3:
Statement showing Excess unit cost traceable to variance | ||||
Variance | ||||
Excess of actual over standard cost per unit | $0.75 | U | ||
Less: Portion attributable to labor efficiency: | ||||
Labor Efficiency variance | $0.90 | U | ||
Variable overhead Efficiency variance | $0.15 | U | $1.05 | U |
Portion due to other variances | $0.30 | F |