Question

I don't know how to solve this accounting problem. The problem is about Variance Analyses.

Problem:

Materials, Labor and Factory Overhead.(CPA, adapted) The Palmtown Furniture Company uses a standard cost system in accounting for its production costs.

The standard cost of a unit of furniture follows:

         

          Lumber, 100 feet @$150 per 1,000 feet                                $15.00

          Direct labor, 4 hours @ 2.50 per hour                                    10.00

          Factory overhead:

                      Fixed (30% of direct labor)                $3.00

                      Variable (60% of direct labor)           6.00                 9.00

                                                            Total unit cost                                                 $34.00

                        The following flexible monthly overhead budget is in effect:

                                    Direct Labor Hours                                         Budgeted Overhead

                                                5,200……………………………….              $10,800

                                                4,800……………………………….              10,200

                                                4,400……………………………….                  9,600

                                                4,000(normal capacity)……………                   9,000

                                                3,600………………………………..                 8,400

The actual data for the month of December follows:

            1,200 finished units

            Lumber purchased 150,000 feet @ $120 per 1,000 feet

            Lumber used 110 feet per unit

            Direct labor 4 1/4 hours per unit @ $2.60 per hour                       

            Fixed Factory overhead $2,655

            Variable Factory overhead $7,905                                       

                                                                                   

Required: An analysis of each element of the total variance from standard cost for the month of December.

Answer 1

solution

Given standered data
1 Material = Lumber 100 feet @ $150 per 1000 feet

2.Direct labour 4hrs @ $2.5 / hr

3.Overhead = fixed overhead = 30% of direct labour
variable overhead = 60% of direct labour

Actual data

1. Material = 110 feet @ $120 per 1000 feet

2. Direct labour = 4.25 hrs @ $2.60 Per hrs

3. overhead = fixed overhead = $2655
variable overhead = $7905

Budgeted data for 1 unit of output

Revised bugeted data for actual unit of output ie 1200 units

actual data for actual output ie 1200 units

calculation of budgeted fixed overheads

where Direct labour hours is 4400, budgeted overheads $9600
and where direct labour hours is 4800, budgeted overheads is$10200

so, change in budgeted overheads / change in direct labour hrs
(10200 - 9600) / (4800 - 4400) = $1.5 variable overheads per hour

variable overheads = 4400 direct labour hours x 1.5 = $6600 variable overhead

now budgeted fixed overhead @4800 hrs = 10200 - (4800 x 1.5) = $3000

Calculation of variences

Material varience

Material price varience =( standered price - actual price ) x Actual quantity puchased

= (0.15 - 0.12) x (150000)
= 4500 F

Material usage varience = (standered quantiy - actual quantiy ) x standered price

= (120000 - 132000) x $0.15

= $1800 A

Labour variences

Labour rate varience = ( standered rate - actual rate) x actual hrs

= ($2.5 -$2.60) x 5100 hrs

= $510 A

Labour efficiencey varience = ( standered hrs - actual hrs) x standered rates

= (4800 hrs - 5100 hrs) x $2.5

= $750 A

Variable overheads

expenditure varience = ( standered rate - actual rate) x actual hrs

= ($1.5 - 1.55) x 5100hrs

= $255 A

efficiency variences = ( standered hrs - actual hrs) x standered rates

= (4800 hrs - 5100 hrs) x $1.5

= $450 A

Fixed overhead varience

expenditure varience = budgeted fixed overheads - actual fixed overheads

= $3000 - $2655

= $345 F