Question

12. Handerson Corporation makes a product with the following standard costs:

	Standard Quantity or Hours			Standard Price or Rate
Direct materials		8.5	kilos	$	6.00	per kilo
Direct labor		0.4	hours	$	20.00	per hour
Variable overhead		0.4	hours	$	6.00	per hour

The company reported the following results concerning this product in August.

Actual output		3,200	units
Raw materials used in production		29,030	kilos
Purchases of raw materials		31,600	kilos
Actual direct labor-hours		1,160	hours
Actual cost of raw materials purchases	$	195,920
Actual direct labor cost	$	22,736
Actual variable overhead cost	$	7,540

The company applies variable overhead on the basis of direct labor-hours. The direct materials purchases variance is computed when the materials are purchased.

The materials quantity variance for August is:

A) $10,980 F

B) $11,346 U

C) $10,980 U

D) $11,346 F

The materials price variance for August is:

A) $5,440 F

B) $6,320 F

C) $5,440 U

D) $6,320 U

The labor efficiency variance for August is:

A) $2,400 U

B) $2,400 F

C) $2,352 F

D) $2,352 U

The labor rate variance for August is:

A) $464 F

B) $512 U

C) $464 U

D) $512 F

The variable overhead efficiency variance for August is:

A) $720 U

B) $720 F

C) $780 U

D) $780 F

The variable overhead rate variance for August is:

A) $640 F

B) $580 U

C) $640 U

D) $580 F

Answer 1

• Workings

Actual DATA for		3200	units
	Quantity (AQ)	Rate (AR)	Actual Cost
Direct Material	29030	$                   6.20	$        179,986.00
Direct labor	1160	$                19.60	$           22,736.00
Variable Overhead	1160	$                   6.50	$             7,540.00

Standard DATA for		3200	units
	Quantity (SQ)	Rate (SR)	Standard Cost
	[A]	[B]	[A x B]
Direct Material	( 8.5 kg x 3200 units)=27200 kg	$                   6.00	$     163,200.00
Direct labor	( 0.4 hours x 3200 units)=1280 hours	$                20.00	$       25,600.00
Variable Overhead	( 0.4 hours x 3200 units)=1280 hours	$                   6.00	$         7,680.00

• Material qty variance = Option ‘C’ $ 10980 U

Material Quantity Variance
(	Standard Quantity	-	Actual Quantity	)	x	Standard Rate
(	27200	-	29030	)	x	$                           6.00
	-10980
	Variance		$            10,980.00			Unfavourable-U

• Material Price Variance = Option ‘D’ $ 6320 U

Material Price Variance
(	Standard Rate	-	Actual Rate	)	x	Actual Quantity
(	$                                6.00	-	$                       6.20	)	x	31600
	-6320
	Variance		$              6,320.00			Unfavourable-U

• Labor Efficiency Variance = Option B $ 2400 F

Labour Efficiency Variance
(	Standard Hours	-	Actual Hours	)	x	Standard Rate
(	1280	-	1160	)	x	$                        20.00
	2400
	Variance		$              2,400.00			Favourable-F

• Labor Rate variance = Option C $ 464 U

Labor Rate Variance
(	Standard Rate	-	Actual Rate	)	x	Actual Labor Hours
(	$                              20.00	-	$                    19.60	)	x	1160
	464
	Variance		$                  464.00			Favourable-F

• VO Efficiency variance = Option B $ 720 F

Variable Overhead Efficiency Variance
(	Standard Hours	-	Actual Hours	)	x	Standard Rate
(	1280	-	1160	)	x	$                           6.00
	720
	Variance		$                  720.00			Favourable-F

• VO Rate Variance = Option B $ 580 U

Variable Overhead Rate Variance
(	Standard Rate	-	Actual Rate	)	x	Actual Labor Hours
(	$                                6.00	-	$                       6.50	)	x	1160
	-580
	Variance		$                 580.00			Unfavourable-U