Question

In: Accounting

Landers Company manufactures a number of products. The standards relating to one of these products are...

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.)

     

Solutions

Expert Solution

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

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