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: 1.80 feet at $2.20 per foot	$	3.96
Actual: 1.75 feet at $2.40 per foot							$	4.20
Direct labor:
Standard: 0.90 hours at $14.00 per hour		12.60
Actual: 0.95 hours at $13.40 per hour								12.73
Variable overhead:
Standard: 0.90 hours at $5.00 per hour		4.50
Actual: 0.95 hours at $4.60 per hour								4.37
Total cost per unit	$	21.06					$	21.30
Excess of actual cost over standard cost per unit				$	0.24

The production superintendent was pleased when he saw this report and commented: “This $0.24 excess cost is well within the 5 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 13,000 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 $0.24 excess unit cost is traceable to each of the variances computed in (1) above.

3. How much of the $0.24 excess unit cost is traceable to apparent inefficient use of labor time?

Answer 1

Solution

INFORMATION TABLE (actual production - 13000 units)

Standard

Actual

Material

Material

Qty

Rate

Cost

Qty

Rate

Cost

23400

2.2

51480

22750

2.4

54600

Labour

Labour

Hour

Rate

Cost

Hour

Rate

Cost

11700

14

163800

12350

13.4

165490

variable OH

Variable OH

Hours

Rate

Cost

Hours

Rate

Cost

11700

5

58500

12350

4.60

56810

Total Cost

273780

Total Cost

276900

a

we have, Material Qty variance

we have , material price variance

(Std qty-Actual Qty)*Std Rate

(Std rate-actual rate)*actual qty

(23400-22750)*2.2

(2.2-2.4)*22750

1430

favorable

-4550

adverse

b

we have , Labour efficiency variance

we have , Labour ratee variance

(std hours-actual hours)*std rate

(Std rate-actual rate)*actual hours

(11700-12350)*14

(14-13.4)*12350

-9100

adverse

7410

Favorable

c

we have , variable OH efficiency variance

we have , Variable OH ratee variance

(std hours-actual hours)*std rate

(Std rate-actual rate)*actual hours

(11700-12350)*5

(5-4.6)*12350

-3250

Adverse

4940

Favorable