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 $3.00 per foot	$	5.40
Actual: 1.80 feet at $3.30 per foot					$	5.94
Direct labor:
Standard: 0.90 hours at $18.00 per hour		16.20
Actual: 0.92 hours at $17.50 per hour						16.10
Variable overhead:
Standard: 0.90 hours at $5.00 per hour		4.50
Actual: 0.92 hours at $4.50 per hour						4.14
Total cost per unit	$	26.10			$	26.18
Excess of actual cost over standard cost per unit			$	0.08

The production superintendent was pleased when he saw this report and commented: “This $0.08 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 12,000 units. Variable overhead cost is assigned to products on the basis of direct labor-hours. There were no beginning or ending inventories of materials.

3. How much of the $0.08 excess unit cost is traceable to apparent inefficient use of labor time? (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). Do not round intermediate calculations. Round your final answers to 2 decimal places.) Excess of actual over standard cost per unit U Less portion attributable to labor inefficiency: Labor efficiency variance U Variable overhead efficiency variance U U Portion due to other variances F

Answer 1

• All working forms part of the answer
• Actual Data and Standard data for actual output of 12000 units

Actual DATA for		12000	units
	Quantity (AQ)	Rate (AR)	Actual Cost
Direct Material	21600	$                3.30	$           71,280.00
Direct labor	11040	$              17.50	$      1,93,200.00
Variable Overhead	11040	$                4.50	$           49,680.00
Standard DATA for		12000	units
	Quantity (SQ)	Rate (SR)	Standard Cost
Direct Material	21600	$                3.00	$           64,800.00
Direct labor	10800	$              18.00	$       1,94,400.00
Variable Overhead	10800	$                5.00	$           54,000.00

• Calculation of All the variances

Material Price Variance
(	Standard Rate	-	Actual Rate	)	x	Actual Quantity
(	$                 3.00	-	$                 3.30	)	x	21600
	-6480
	Variance		6480			Unfavourable-U
Material Quantity Variance
(	Standard Quantity	-	Actual Quantity	)	x	Standard Rate
(	21600	-	21600	)	x	$                           3.00
	0
	Variance		0			Favourable-F
Material Spending Variance
(	Standard Cost	-	Actual Cost	)
(	$      64,800.00	-	$      71,280.00	)
	-6480
	Variance		6480			Unfavourable-U
Labor Rate Variance
(	Standard Rate	-	Actual Rate	)	x	Actual Labor Hours
(	$               18.00	-	$               17.50	)	x	11040
	5520
	Variance		5520			Favourable-F
Labour Efficiency Variance
(	Standard Hours	-	Actual Hours	)	x	Standard Rate
(	10800	-	11040	)	x	$                        18.00
	-4320
	Variance		4320			Unfavourable-U
Labor Spending Variance
(	Standard Cost	-	Actual Cost	)
(	$   1,94,400.00	-	$   1,93,200.00	)
	1200
	Variance		1200			Favourable-F
Variable Overhead Rate Variance
(	Standard Rate	-	Actual Rate	)	x	Actual Labor Hours
(	$                 5.00	-	$                 4.50	)	x	11040
	5520
	Variance		5520			Favourable-F
Variable Overhead Efficiency Variance
(	Standard Hours	-	Actual Hours	)	x	Standard Rate
(	10800	-	11040	)	x	$                           5.00
	-1200
	Variance		1200			Unfavourable-U
Variable Overhead Spending Variance
(	Standard Cost	-	Actual Cost	)
(	$      54,000.00	-	$      49,680.00	)
	4320
	Variance		4320			Favourable-F

• Answer, based ob above working

Excess of actual over standard cost per unit			0.08	U
Less portion attributable to labor inefficiency:
Labor efficiency variance	[4320U/12000 units]	0.36 U
Variable overhead efficiency variance	[1200U/12000 units]	0.1 U	0.46	U
Portion due to other variances			0.38	F