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 $1.40 per foot $ 2.52 Actual: 1.75 feet at $1.80 per foot $ 3.15 Direct labor: Standard: 0.90 hours at $17.00 per hour 15.30 Actual: 0.95 hours at $16.40 per hour 15.58 Variable overhead: Standard: 0.90 hours at $6.00 per hour 5.40 Actual: 0.95 hours at $5.60 per hour 5.32 Total cost per unit $ 23.22 $ 24.05 Excess of actual cost over standard cost per unit $ 0.83 The production superintendent was pleased when he saw this report and commented: “This $0.83 excess cost is well within the 5 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. b. Labor rate and efficiency variances. c. Variable overhead rate and efficiency variances. 2. How much of the $0.83 excess unit cost is traceable to each of the variances computed in (1) above. 3. How much of the $0.83 excess unit cost is traceable to apparent inefficient use of labor time?

Answer 1

1	Standard Data:					Standard Data for Actual Quanity:
		Quantity	Rate	Total			Quantity	Rate	Total
	Direct Material	1.80	1.40	2.52		Direct Material	19,800	1.40	27,720
	Direct Labor	0.90	17.00	15.30		Direct Labor	9,900	17.00	1,68,300
	Variable OH	0.90	6.00	5.40		Variable OH	9,900	6.00	59,400
				23.22					2,55,420
	Actual Data PU					Actual Data for Actual Quatity:
		Quantity	Rate	Total			Quantity	Rate	Total
	Direct Material	1.75	1.80	3.15		Direct Material	19,250	1.80	34,650
	Direct Labor	0.95	16.40	15.58		Direct Labor	10,450	16.40	1,71,380
	Variable OH	0.95	5.60	5.32		Variable OH	10,450	5.60	58,520
				24.05					2,64,550
	Direct Material Variances					Direct Labor Variances
	Price:	(SP-AP)*AQ Used				Price:	(SP-AP)*AH Used
		(1.40-1.80)*19250					(17.00-16.40)*10450
		-7700	Unfavourable				6270	Favourable
	Efficiency	(SQ-AQ)*SP				Efficiency	(SH-AH)*SP
		(19800-19250)*1.40					(9900-10450)*17
		770	Favourable				-9350	Unfavourable
	Total	-6930	Unfavourable			Total	-3080	Unfavourable
	Variable OH Variance
	Price:	(SP-AP)*AQ Used
		(6.00-5.60)*10450
		4180	Favourable
	Efficiency	(SQ-AQ)*SP
		(9900-10450)*6
		-3300	Unfavourable
	Total	880	Favourable
		Variance	Type	Variance PU
	DM Price Variance	-7700	Unfavourable	-0.70
	DM Eff Variance	770	Favourable	0.07
	DL Price Variance	6270	Favourable	0.57
	DL Eff Variance	-9350	Unfavourable	-0.85	Allocated to Labor Efficiency
	VOH Price Variance	4180	Favourable	0.38
	VOH Eff Variance	-3300	Unfavourable	-0.30
	Total	-9130	Unfavourable	-0.83