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 $2.80 per foot	$	5.04
Actual: 1.75 feet at $3.00 per foot				$	5.25
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	$	23.04		$	23.30
Excess of actual cost over standard cost per unit				$	0.26

The production superintendent was pleased when he saw this report and commented: “This $0.26 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 $0.26 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 $0.26 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.)

Answer 1

• All Working forms part of the answer
• Actual Data and Standard data for actual output

Actual DATA for		10000	units
	Quantity (AQ)	Rate (AR)	Actual Cost
Direct Material	17500	$       3.00	$     52,500.00
Direct labor	9500	$    15.40	$ 1,46,300.00
Variable Overhead	9500	$       3.60	$     34,200.00
Standard DATA for		10000	units
	Quantity (SQ)	Rate (SR)	Standard Cost
Direct Material	18000	$       2.80	$     50,400.00
Direct labor	9000	$    16.00	$ 1,44,000.00
Variable Overhead	9000	$       4.00	$     36,000.00

• All the variances

Material Price Variance
(	Standard Rate	-	Actual Rate	)	x	Actual Quatity
(	$                 2.80	-	$                 3.00	)	x	17500
	-3500
	Variance		3500			Unfavourable-U
Material Quantity Variance
(	Standard Quantity	-	Actual Quantity	)	x	Standard Rate
(	18000	-	17500	)	x	$                           2.80
	1400
	Variance		1400			Favourable-F
Material Spending Variance
(	Standard Cost	-	Actual Cost	)
(	$      50,400.00	-	$      52,500.00	)
	-2100
	Variance		2100			Unfavourable-U
Labor Rate Variance
(	Standard Rate	-	Actual Rate	)	x	Actual Labor Hours
(	$               16.00	-	$               15.40	)	x	9500
	5700
	Variance		5700			Favourable-F
Labour Efficiency Variance
(	Standard Hours	-	Actual Hours	)	x	Standard Rate
(	9000	-	9500	)	x	$                        16.00
	-8000
	Variance		8000			Unfavourable-U
Labor Spending Variance
(	Standard Cost	-	Actual Cost	)
(	$   1,44,000.00	-	$   1,46,300.00	)
	-2300
	Variance		2300			Unfavourable-U
Variable Overhead Rate Variance
(	Standard Rate	-	Actual Rate	)	x	Actual Labor Hours
(	$                 4.00	-	$                 3.60	)	x	9500
	3800
	Variance		3800			Favourable-F
Variable Overhead Efficiency Variance
(	Standard Hours	-	Actual Hours	)	x	Standard Rate
(	9000	-	9500	)	x	$                           4.00
	-2000
	Variance		2000			Unfavourable-U
Variable Overhead Spending Variance
(	Standard Cost	-	Actual Cost	)
(	$      36,000.00	-	$      34,200.00	)
	1800
	Variance		1800			Favourable-F