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: 1.90 feet at $3.20 per foot	$	6.08
Actual: 1.85 feet at $3.60 per foot							$	6.66
Direct labor:
Standard: 1.00 hours at $19.00 per hour		19.00
Actual: 1.05 hours at $18.40 per hour								19.32
Variable overhead:
Standard: 1.00 hours at $8.00 per hour		8.00
Actual: 1.05 hours at $7.60 per hour								7.98
Total cost per unit	$	33.08					$	33.96
Excess of actual cost over standard cost per unit				$	0.88

The production superintendent was pleased when he saw this report and commented: “This $0.88 excess cost is well within the 4 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 15,500 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.

b. Labor rate and efficiency variances.

c. Variable overhead rate and efficiency variances.

2. How much of the $0.88 excess unit cost is traceable to each of the variances computed in (1) above.

3. How much of the $0.88 excess unit cost is traceable to apparent inefficient use of labor time?

Answer 1

Solution
	INFORMATION TABLE (for 15500 units)
	Standard			Actual
	Material			Material
	Qty	Rate	Cost	Qty	Rate	Cost
	29450	3.2	94240	28675	3.6	103230
	Labour			Labour
	Hour	Rate	Cost	Hour	Rate	Cost
	15500	19	294500	16275	18.4	299460
	Variable OH			Variable OH
	Hours	Rate	Cost	Hours	Rate	Cost
	15500	8	124000	16275	7.6	123690
1	Material Price Variance
	(Std Rate - Actual Rate)*Actual Qty
	(3.2-3.6)*28675
	-11470	Adverse
	Material Qty Variance
	(Std Qty- Actual Qty)* Std Rate
	(29450-28675)3.2
	2480	Favorable
2	Labour Rate Variance
	(Std Rate - Actual Rate)* Actual hours
	(19-18.4)*16275
	9765	favourable
	Labour Efficiency Variance
	(Std Hours - actual hours)*Std Rate
	-14725	Adverse
3	Variable OH rate Variance44
	(Std Rate- Actual rate)* Actual qty
	(8-7.6)*16275
	6510	Favourable
	Variable oh Efficiency Variance
	(Std hours -Actual Hours)*Std rate
	(15500-16275)*8
	-6200	Adverse