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 8.50 liters $ 8.10 per liter Direct labor 0.60 hours $ 25.70 per hour Variable manufacturing overhead 0.60 hours $ 7.00 per hour The company has reported the following actual results for the product for September: Actual output 10,700 units Raw materials purchased 93,100 liters Actual cost of raw materials purchased $ 771,500 Raw materials used in production 90,960 liters Actual direct labor-hours 6,000 hours Actual direct labor cost $ 160,302 Actual variable overhead cost $ 35,414 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

• All working forms part of the answer

Note no.	Explanation
1	Standard data is calculated by considering budgeted data and using actual data.
2	Variance refers to the difference between Standard cost and Actual cost.
3	If Actual cost is MORE than Standard Cost, the Variance is said to be UNFAVOURABLE.
4	If Actual cost is LESS than Standard Cost, the Variance is said to be FAVOURABLE.

• Working

Actual DATA for		10700	units
	Quantity (AQ)	Rate (AR)	Actual Cost
Direct Material	90960	$              8.287	$        753,766.27
Direct labor	6000	$              26.72	$        160,302.00
Variable Overhead	6000	$                5.90	$           35,414.00

Standard DATA for		10700	units
	Quantity (SQ)	Rate (SR)	Standard Cost
	[A]	[B]	[A x B]
Direct Material	( 8.5 ltrs x 10700 units)=90950 ltrs	$                   8.10	$     736,695.00
Direct labor	( 0.6 hours x 10700 units)=6420 hours	$                25.70	$     164,994.00
Variable Overhead	( 0.6 hours x 10700 units)=6420 hours	$                   7.00	$       44,940.00

• Requirement ‘a’ Material Price variance

The below Variance is calculated based on Actual quantity used (and not on the basis of actual material purchased). If there’s any error, mention that in a comment and I’ll sort that out.

Material Price Variance
(	Standard Rate	-	Actual Rate	)	x	Actual Quantity
(	$                        8.10	-	$                       8.29	)	x	90960
	-16990.27282
	Variance		$            16,990.27 or $ 16,990			Unfavourable-U

• Requirement ‘b’

Material Quantity Variance
(	Standard Quantity	-	Actual Quantity	)	x	Standard Rate
(	90950	-	90960	)	x	$                           8.10
	-81
	Variance		$                    81.00			Unfavourable-U

• Requirement ‘c’

Labor Rate Variance
(	Standard Rate	-	Actual Rate	)	x	Actual Labor Hours
(	$                     25.70	-	$                    26.72	)	x	6000
	-6102
	Variance		$              6,102.00			Unfavourable-U

• Requirement ‘d’

Labour Efficiency Variance
(	Standard Hours	-	Actual Hours	)	x	Standard Rate
(	6420	-	6000	)	x	$                        25.70
	10794
	Variance		$            10,794.00			Favourable-F

• Requirement ‘e’

Variable Overhead Rate Variance
(	Standard Rate	-	Actual Rate	)	x	Actual Labor Hours
(	$                        7.00	-	$                       5.90	)	x	6000
	6586
	Variance		$              6,586.00			Favourable-F

• Requirement ‘f’

Variable Overhead Efficiency Variance
(	Standard Hours	-	Actual Hours	)	x	Standard Rate
(	6420	-	6000	)	x	$                           7.00
	2940
	Variance		$              2,940.00			Favourable-F