In: Accounting
Landram Corporation makes a product with the following standard costs:
Inputs | Standards Quantity or Hours | Standard Price or Rate |
Direct Materials | 2.0 kilos | $7.00 per kilo |
Direct labor | 0.5 hours | $19.00 per hour |
Variable overhead | 0.5 hours | $5.00 per hour |
In March the company produced 4,700 units using 10,230 kilos of the
direct material and 2,210 direct labor-hours. During the month, the
company purchased 10,800 kilos of the direct material at a cost of
$76,680. The actual direct labor cost was $38,233 and the actual
variable overhead cost was $11,934.
The company applies variable overhead on the basis of direct
labor-hours. The direct materials purchases variance is computed
when the materials are purchased
Compute the materials quantity variance, materials price variance, labor efficiency variance,
Labor rate variance, variable overhead efficiency variance and variable overhead rate
variance.
Solution
Material Price Variance | $ 1,080.00 | Unfavourable-U |
Material quantity variance | $ 9,800.00 | Unfavourable-U |
.
Labor rate variance | $ 3,757.00 | Favourable-F |
Labor Efficiency variance | $ 2,660.00 | Favourable-F |
.
Variable Overhead Rate Variance | $ 884.00 | Unfavourable-U |
Variable Overhead Efficiency Variance | $ 700.00 | Favourable-F |
Working
Actual DATA for | 4700 | Units | |
Quantity (AQ) | Rate (AR) | Actual Cost | |
Direct Material | 10800 | $ 7.10 | $ 76,680.00 |
Direct labor | 2210 | $ 17.30 | $ 38,233.00 |
Variable Overhead | 2210 | $ 5.40 | $ 11,934.00 |
.
Standard DATA for | 4700 | Units | |
Quantity (SQ) | Rate (SR) | Standard Cost | |
[A] | [B] | [A x B] | |
Direct Material | ( 2 kilo x 4700 Units)=9400 kilo | $ 7.00 | $ 65,800.00 |
Direct labor | ( 0.5 Hour x 4700 Units)=2350 Hour | $ 19.00 | $ 44,650.00 |
Variable Overhead | ( 0.5 Hour x 4700 Units)=2350 Hour | $ 5.00 | $ 11,750.00 |
.
Material Price Variance | ||||||
( | Standard Rate | - | Actual Rate | ) | x | Actual Quantity |
( | $ 7.00 | - | $ 7.10 | ) | x | 10800 |
-1080 | ||||||
Variance | $ 1,080.00 | Unfavourable-U | ||||
Material Quantity Variance | ||||||
( | Standard Quantity | - | Actual Quantity | ) | x | Standard Rate |
( | 9400 | - | 10800 | ) | x | $ 7.00 |
-9800 | ||||||
Variance | $ 9,800.00 | Unfavourable-U |
.
Labor Rate Variance | ||||||
( | Standard Rate | - | Actual Rate | ) | x | Actual Labor Hours |
( | $ 19.00 | - | $ 17.30 | ) | x | 2210 |
3757 | ||||||
Variance | $ 3,757.00 | Favourable-F | ||||
Labour Efficiency Variance | ||||||
( | Standard Hours | - | Actual Hours | ) | x | Standard Rate |
( | 2350 | - | 2210 | ) | x | $ 19.00 |
2660 | ||||||
Variance | $ 2,660.00 | Favourable-F |
.
Variable Overhead Rate Variance | ||||||
( | Standard Rate | - | Actual Rate | ) | x | Actual Labor Hours |
( | $ 5.00 | - | $ 5.40 | ) | x | 2210 |
$ (884.00) | ||||||
Variance | $ 884.00 | Unfavourable-U | ||||
Variable Overhead Efficiency Variance | ||||||
( | Standard Hours | - | Actual Hours | ) | x | Standard Rate |
( | 2350 | - | 2210 | ) | x | $ 5.00 |
$ 700.00 | ||||||
Variance | $ 700.00 | Favourable-F |