Question

Kropf Inc. has provided the following data concerning one of the products in its standard cost system. Variable manufacturing overhead is applied to products on the basis of direct labor-hours.

Inputs	Standard Quantity or Hours per Unit of Output			Standard Price or Rate
Direct materials		9.00	liters	$	8.60	per liter
Direct labor		0.40	hours	$	37.70	per hour
Variable manufacturing overhead		0.40	hours	$	7.50	per hour

The company has reported the following actual results for the product for September:

Actual output		11,200	units
Raw materials purchased		102,600	liters
Actual cost of raw materials purchased	$	896,500
Raw materials used in production		100,820	liters
Actual direct labor-hours		4,300	hours
Actual direct labor cost	$	170,302
Actual variable overhead cost	$	27,414

Required:

a. Compute the materials price variance for September.

b. Compute the materials quantity variance for September.

c. Compute the labor rate variance for September.

d. Compute the labor efficiency variance for September.

e. Compute the variable overhead rate variance for September.

f. Compute the variable overhead efficiency variance for September.

(Indicate the effect of each variance by selecting "F" for favorable, "U" for unfavorable, and "None" for no effect (i.e., zero variance). Input all amounts as positive values.)

Answer 1

a. Material Price Variance = (Standard Price - Actual Price) * Actual Quantity

Standard Price = $8.60 per litre

Actual Price = $896,500 / 102,600 = $8.74 per litre

Actual Quantity = 100,820 litres

Hence,

Material Price Variance = (8.60 - 8.74) * 100,820

= -0.14 * 100,820

= -14,115 = $14,115 Unfavorable

b. Material Quantity Variance = (Standard Quantity - Actualy Quantity) * Standard Price

Standard Quantity = 11,200 units * 9 = 100,800 litres

Actual Quantity = 100,820 litres

Standard Price = $8.60 per litre

Hence,

Material Quantity Variance = (100,800 - 100,820) * 8.60

= -20 * 8.60

= -172 = $172 Unfavorable

c. Labor Rate Variance = (Standard Rate - Actual Rate) * Actual Hours

= (Standard Rate * Actual Hours) - (Actual Rate * Actual Hours)

Standard Rate = $37.70 per hour

Actual Rate * Actual Hours = $170,302

Actual Hours = 4,300 hours

Hence,

Labor Rate Variane = (37.70 * 3,400) - 170,302

= 162,110 - 170,302

= -8,192 = $8,192 Unfavorable

d. Labor Efficiency Variance = (Standard Hours - Actual Hours) * Standard Rate

Standard Hours = 11,200 units * 0.40 hours = 4,480 hours

Actual Hours = 4,300 hours

Standard Rate = $37.70 per hour

Hence,

Labor Efficiency Variance = (4,480 - 4,300) * 37.70

= 180 * 37.70

= 6,786 = $6,786 Favorable

e. Variable Overhead Rate Variance = (Standard Rate - Actual Rate) * Actual Hours

= (Standard Rate * Actual Hours) - (Actual Rate * Actual Hours)

Standard Rate = $7.50 per hour

Actual Rate * Actual Hours = $27,414

Actual Hours = 4,300 hours

Hence,

Variable Overhead Rate Variance = (7.50 * 4,300) - 27,414

= 32,250 - 27,414

= 4,836 = $4,836 Favorable

f. Variable Overhead Efficiency Variance = (Standard Hours - Actual Hours) * Standard Rate

Standard Hours = 11,200 units * 0.40 hours = 4,480 hours

Actual Hours = 4,300 hours

Standard Rate = $7.50 per hour

Hence,

Variable Overhead Efficiency Variance = (4,480 - 4,300) * 7.50

= 180 * 7.50

= 1,350 = $1,350 Favorable