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: 1.75 feet at $3.20 per foot					$	5.60
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 $3.00 per hour		2.70
Actual: 0.95 hours at $2.60 per hour						2.47
Total cost per unit	$	20.70			$	20.80
Excess of actual cost over standard cost per unit			$	0.10

The production superintendent was pleased when he saw this report and commented: “This $0.10 excess cost is well within the 1 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 11,000 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 $0.10 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 $0.10 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

1.a.

Material
Standard Quantity SQ	1.8	ft
Actual Quantity AQ	1.75	ft
Actual Price (AP)	$3.20
Standard Price (SP)	$3.00
Unit Material price variance (SP - AP) x AQ	0.35	Unfavourable
Unit Material quantity variance (SQ - AQ ) X SP	0.15	Favourable
Total Material price variance	3850	Unfavourable
Total Material quantity variance	1650	Favourable

1-b.

Labor
Standard hours SH	0.90	hours
Actual Hours AH	0.95	hours
Actual Rate per hour (AR)	$13.40
Standard Rate per hour (SR)	$14.00
Unit Labor rate variance (SR - AR) x AH	0.57	Favourable
Unit Labor efficiency variance (SH - AH ) X SR	0.70	Unfavourable
Total labor rate variance	6270	Favourable
Total labor efficiency variance	7700	Unfavourable

1-c.

Variable overhead
Standard hours SH	0.90	hours
Actual Hours AH	0.95	hours
Actual Rate per hour (AR)	$2.60
Standard Rate per hour (SR)	$3.00
Unit Labor rate variance (SR - AR) x AH	0.38	Favourable
Unit Labor efficiency variance (SH - AH ) X SR	0.15	Unfavourable
Total labor rate variance	4180	Favourable
Total labor efficiency variance	1650	Unfavourable

2.

Unit Material price variance	0.35U
Unit Material quantity variance	0.15F
Unit Labor rate variance	0.57F
Unit Labor efficiency variance	0.70U
Unit variable overhead rate variance (SR - AR) x AH	0.38F
Unit Variabe overhead efficiency variance (SH - AH ) X SR	0.15U
Total Variance	0.10U

3.

Unit Labor efficiency variance	0.70	U
Unit Variabe overhead efficiency variance (SH - AH ) X SR	0.15	U
Variance due to inefficient use of labor time	0.85	U