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 $4.60 per foot	$	8.74
Actual: 1.85 feet at $5.00 per foot							$	9.25
Direct labor:
Standard: 0.95 hours at $19.00 per hour		18.05
Actual: 1.00 hours at $18.50 per hour								18.50
Variable overhead:
Standard: 0.95 hours at $7.00 per hour		6.65
Actual: 1.00 hours at $6.60 per hour								6.60
Total cost per unit	$	33.44					$	34.35
Excess of actual cost over standard cost per unit				$	0.91

The production superintendent was pleased when he saw this report and commented: “This $0.91 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 19,000 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 $0.91 excess unit cost is traceable to each of the variances computed in (1) above.

3. How much of the $0.91 excess unit cost is traceable to apparent inefficient use of labor time?

1a. Compute the following variances for May, materials price and quantity variances.

1b. Compute the following variances for May, labor rate and efficiency variances.

1c. Compute the following variances for May, variable overhead rate and efficiency variances. (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.)

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	1a. Materials price variance Materials quantity variance 1b. Labor rate variance Labor efficiency variance 1c. Variable overhead rate variance Variable overhead efficiency variance

How much of the $0.91 excess unit cost is traceable to each of the variances computed in (1) above. (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. Round your answers to 2 decimal places.)

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	Materials: Price variance Quantity variance Labor: Rate variance Efficiency variance Variable overhead: Rate variance Efficiency variance Excess of actual over standard cost per unit

How much of the $0.91 excess unit cost is traceable to apparent inefficient use of labor time? (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. Do not round intermediate calculations. Round your final answers to 2 decimal places.)

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	Excess of actual over standard cost per unit Less portion attributable to labor inefficiency: Labor efficiency variance Variable overhead efficiency variance Portion due to other variances

Answer 1

Actual Production = 19,000 Units
	SR	SQ	Total	AR	AQ	Total
Direct Material	4.60	36,100.00	166,060.00	5.00	35,150.00	175,750.00
Direct Labor	19.00	18,050.00	342,950.00	18.50	19,000.00	351,500.00
Variable Overhead	7.00	18,050.00	126,350.00	6.60	19,000.00	125,400.00

Answer 1-b.
Labor Rate Variance = (SR - AR) X AH
Labor Rate Variance = ($19 - $18.50) X 19,000 hrs
Labor Rate Variance = $9,500 (F)
Labor Efficiency Variance = (SH - AH) X SR
Labor Efficiency Variance = (18,050 Hrs - 19,000 hrs) X $19
Labor Efficiency Variance = $18,050 (U)
Answer 1-c.
Variable Overhead Rate Variance = (SR - AR) X AH
Variable Overhead Rate Variance = ($7 - $6.60) X 19,000 Hrs
Variable Overhead Rate Variance = $7,600 (F)
Variable Overhead Efficiency Variance = (SH - AH) X SR
Variable Overhead Efficiency Variance = (18,050 Hrs - 19,000 hrs) X $7
Variable Overhead Efficiency Variance = $6,650 (U)
Answer 2.
Material Price Variance - $14,060 (U) / 19,000 Units)	0.74	(U)
Material Quantity Variance - $4,370 (F) / 19,0000 Units	0.23	(F)	0.51	(U)
Labor Rate Variance - $9,500 (F) / 19,000 Units	0.50	(F)
Labor Efficiency Variance - $18,050 (U) / 19,000 Units	0.95	(U)	0.45	(U)
Variable Overhead Rate Variance - $7,600 (F) / 19,000 Units	0.40	(F)
Variable Overhead Efficiency Variance - $6,650 (U) / 19,000 Units	0.35	(U)	0.05	(F)
Excess of actual over standard cost per unit			0.91	(U)
Answer 3.
Both the labor efficiency and variable overhead efficiency variances are affected by inefficient use of labor time.
Excess of actual over standard cost per unit			0.91	(U)
Less portion attributable to labor inefficiency:
Labor Efficiency Variance - $18,050 (U) / 19,000 Units	0.95	(U)
Variable Overhead Efficiency Variance - $6,650 (U) / 19,000 Units	0.35	(U)	1.30	(U)
Portion due to other variances			0.39	(F)