Question

In: Accounting

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

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?

Solutions

Expert Solution

Solution 1a:

Standard quantity of material for actual production = 19000*1.90 = 36100 feet
Actual quantity of material = 19000*1.85 = 35150 feet

Standard price of material = $4.60

Actual price of material = $5

Material price variance = (SP - AP) * AQ = ($4.60 - $5) * 35150 = $14,060 U

Material quantity variance = (SQ - AQ) * SR = (36100 - 35150) * $4.60 = $4,370 F

Solution 1b:

Standard hours of direct labor = 19000 * 0.95 = 18050 hours

Standard rate of direct labor = $19 per hour

Actual hours of direct labor = 19000*1 = 19000 hours

Actual rate of direct labor = $18.50 per hour

Direct labor rate variance = (SR - AR) * AH = ($19 - $18.50) * 19000 = $9,500 F

Direct labor efficiency variance = (SH - AH) * SR = (18050 - 19000) * $19 = $18,050 U

Solution 1c:

Standard hours of direct labor = 19000 * 0.95 = 18050 hours

Standard rate of variable overhead = $7 per hour

Actual hours of direct labor = 19000 hours

Actual rate of variable overhead = $6.60 per hour

Variable overhead rate variance = (SR - AR) * AH = ($7 - $6.60) * 19000 = $7,600 F

Variable overhead efficiency variance = (SH - AH) * SR = (18050 - 19000) * 7 = $6,650 U

Solution 2:

Statement showing Excess unit cost traceable to variance
Variance Total Per unit
Direct material price varaince $14,060.00 U $0.74 U
Direct material quantity varaince $4,370.00 F $0.23 F
Direct labor rate variance $9,500.00 F $0.50 F
Direct labor efficiency variance $18,050.00 U $0.95 U
Variable overhead rate variance $7,600.00 F $0.40 F
Variable overhead efficiency variance $6,650.00 U $0.35 U
Total $0.91 U

Solution 3:

Excess unit cost is traceable to apparent inefficent use of labor time = Labor efficiency variance per unit + Variable overhead efficiency variance per unit = $0.95 + $0.35 =$1.30 per unit


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