Question

Landers 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: 1.40 feet at $3.00 per foot	$	4.20
Actual: 1.35 feet at $3.20 per foot					$	4.32
Direct labor:
Standard: 1.00 hours at $17.00 per hour		17.00
Actual: 1.05 hours at $16.40 per hour						17.22
Variable overhead:
Standard: 1.00 hours at $3.00 per hour		3.00
Actual: 1.05 hours at $2.60 per hour						2.73
Total cost per unit	$	24.20			$	24.27
Excess of actual cost over standard cost per unit			$	0.07

The production superintendent was pleased when he saw this report and commented: "This $0.07 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 15,000 units. Variable overhead cost is assigned to products on the basis of direct labour-hours. There were no beginning or ending inventories of materials.

Required:

1.	Compute the following variances for May:

a.	Materials quantity and price variances. (Input all amounts as positive values. Leave no cells blank - be certain to enter "0" wherever required. Indicate the effect of each variance by selecting "F" for favorable, "U" for unfavorable, and "None" for no effect (i.e., zero variance.)

          

b.	Labour efficiency and rate variances. (Input all amounts as positive values. Leave no cells blank - be certain to enter "0" wherever required. 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 efficiency and rate variances. (Input all amounts as positive values. Leave no cells blank - be certain to enter "0" wherever required. 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 $0.07 excess unit cost is traceable to each of the variances computed in (1) above. (Input all amounts as positive values. Leave no cells blank - be certain to enter "0" wherever required. Round your answers to 2 decimal places. Indicate the effect of each variance by selecting "F" for favorable, "U" for unfavorable, and "None" for no effect (i.e., zero variance.)

     

3.

How much of the $0.07 excess unit cost is traceable to apparent inefficient use of labour time? (Input all amounts as positive values. Leave no cells blank - be certain to enter "0" wherever required. Do not round intermediate calculations. Round your final answers to 2 decimal places. Indicate the effect of each variance by selecting "F" for favorable, "U" for unfavorable, and "None" for no effect (i.e., zero variance.)

     

Answer 1

Material Price Variance = (Standard Price – Actual Price)*Actual Quantity

= (3-3.2)*15000*1.35

= $4,050 U

Material Quantity Variance = (Standard Quantity – Actual Quantity)*Standard Price

= (1.40-1.35)*15,000*3

= $2,250 F

b.Labor Rate variance = (Standard Rate – Actual Rate)*Actual Hours

= (17-16.40)*1.05*15000

= $9,450 F

Efficiency = (Standard Hours – Actual Hours)*Standard Rate

= (1-1.05)*15,000*17

= $12,750 U

c.Variable overhead Rate Variance = (Standard Rate – Actual Rate)*Actual Hours

=(3-2.60)*15,000*1.05

= $6,300 F

Efficiency = (1-1.05)*15000*3

= $2250 U

2. Quantity = $0.15 F

Direct Material Price = $0.27 U

Total = 0.12 U

Efficiency = 0.85 U

Labor Rate = 0.63 F

Total = 0.22 U

Efficiency= 0.15 U

Variable overhead Rate = 0.42 F

Total = 0.27 F

Excess of actual over standard per unit = 0.07 U

3.

Excess of actual over standard = 0.07

portion due to inefficiency

Labor efficiency variance = 0.85 U

Variable overhead efficiency variance = 0.15 U

Total = 1 U

Portion due to other variances = 0.93 F