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: 1.80 feet at $1.80 per foot $ 3.24
Actual: 1.75 feet at $2.00 per foot $ 3.50
Direct labor:
Standard: 0.90 hours at $16.00 per hour 14.40
Actual: 0.95 hours at $15.40 per hour 14.63
Variable overhead:
Standard: 0.90 hours at $4.00 per hour 3.60
Actual: 0.95 hours at $3.60 per hour 3.42
Total cost per unit $ 21.24 $ 21.55
Excess of actual cost over standard cost per unit $ 0.31


The production superintendent was pleased when he saw this report and commented: “This $0.31 excess cost is well within the 2 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 10,000 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. (Input all amounts as positive values. Indicate the effect of each variance by selecting "F" for favorable, "U" for unfavorable, and "None" for no effect (i.e, zero variance).)



b. Labor rate and efficiency variances. (Input all amounts as positive values. Indicate the effect of each variance by selecting "F" for favorable, "U" for unfavorable, and "None" for no effect (i.e, zero variance).)



c. Variable overhead rate and efficiency variances. (Input all amounts as positive values. Indicate the effect of each variance by selecting "F" for favorable, "U" for unfavorable, and "None" for no effect (i.e, zero variance).)



2. How much of the $0.31 excess unit cost is traceable to each of the variances computed in (1) above. (Input all amounts as positive values. Indicate the effect of each variance by selecting "F" for favorable, "U" for unfavorable, and "None" for no effect (i.e., zero variance). Round your answers to 2 decimal places.)



3. How much of the $0.31 excess unit cost is traceable to apparent inefficient use of labor time? (Input all values as positive amounts. Indicate the effect of each variance by selecting "F" for favorable, "U" for unfavorable, and "None" for no effect (i.e., zero variance). Do not round intermediate calculations. Round your final answers to 2 decimal places.)

Solutions

Expert Solution

Actual Production = 10,000 Units
SR SQ Total AR AQ Total
Direct Material           1.80    18,000.00      32,400.00           2.00    17,500.00      35,000.00
Direct Labor         16.00      9,000.00    144,000.00         15.40      9,500.00    146,300.00
Variable Overhead           4.00      9,000.00      36,000.00           3.60      9,500.00      34,200.00
Answer 1-a.
Material Price Variance = (SR - AR) X AQ
Material Price Variance = ($1.80 - $2) X 17,500 feets
Material Price Variance = $3,500 (U)
Material Quantity Variance = (SQ - AQ) X SR
Material Quantity Variance = (18,000 - 17,500) X $1.80
Material Quantity Variance = $900 (F)
Answer 1-b.
Labor Rate Variance = (SR - AR) X AH
Labor Rate Variance = ($16 - $15.40) X 9,500 hrs
Labor Rate Variance = $5,700 (F)
Labor Efficiency Variance = (SH - AH) X SR
Labor Efficiency Variance = (9,000 Hrs - 9,500 hrs) X $16
Labor Efficiency Variance = $8,000 (U)
Answer 1-c.
Variable Overhead Rate Variance = (SR - AR) X AH
Variable Overhead Rate Variance = ($4 - $3.60) X 9,500 Hrs
Variable Overhead Rate Variance = $3,800 (F)
Variable Overhead Efficiency Variance = (SH - AH) X SR
Variable Overhead Efficiency Variance = (9,000 Hrs - 9,500 hrs) X $4
Variable Overhead Efficiency Variance = $2,000 (U)
Answer 2.
Material Price Variance - $3,500 (U) / 10,000 Units)           0.35 (U)
Material Quantity Variance - $900 (F) / 10,0000 Units           0.09 (F)           0.26 (U)
Labor Rate Variance - $5,700 (F) / 10,000 Units           0.57 (F)
Labor Efficiency Variance - $8,000 (U) / 10,000 Units           0.80 (U)           0.23 (U)
Variable Overhead Rate Variance - $3,800 (F) / 10,000 Units           0.38 (F)
Variable Overhead Efficiency Variance - $2,000 (U) / 10,000 Units           0.20 (U)           0.18 (F)
Excess of actual over standard cost per unit           0.31 (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           0.31 (U)
Less portion attributable to labor inefficiency:
Labor Efficiency Variance - $8,000 (U) / 10,000 Units           0.80 (U)
Variable Overhead Efficiency Variance - $2,000 (U) / 10,000 Units           0.20 (U)           1.00 (U)
Portion due to other variances           0.69 (F)

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