Question

Coop Corporation Standards and Variances
Coop Corporation manufactures a single product. The standard cost per unit of
product is shown below:
Direct materials, 1 pount plastic at $7 per pound					$        7.00
Direct labor, 1.6 hours at $12 per hour					19.20
Variable manufacturing overhead					12.00
Fixed manufacturing overhead					4.00
Total standard cost per unit					$     42.20
The predetermined manufacturing overhead rate is $10 per direct labor hour [($12.00 + $4.00)/1.6].
It was computed from a master manufacturing overhead budget based on normal production of
8,000 direct labor hours (5,000 units) for the month. The master budget showed total variable costs
of $60,000 ($7.50 per hour) and total fixed overhead costs of $20,000 ($2.50 per hour). Actual
costs for October in producing 4,800 units are shown below.
Direct materials (5,100 pounds)				$             36,720
Direct labor (7,400 hours)				92,500
Variable overhead				59,700
Fixed overhead				21,000
Total manufacturing costs				$          209,920
The purchasing department buys the quantities of raw materials that are expected to be
used in production each month. Raw materials inventories, therefore, can be ignored.
Required:
1) Please compute the materials price and quantity variances.
2) Please compute the labor rate and efficiency variances.
3) Please compute the variable manufacturing overhead rate and efficiency variances.

Answer 1

• Working data

Actual DATA for		4800	units
	Quantity (AQ)	Rate (AR)	Actual Cost
Direct Material	5100	$                   7.20	$           36,720.00
Direct labor	7400	$                12.50	$           92,500.00
Variable Overhead	7400	$                   8.07	$           59,700.00

Standard DATA for		4800	units
	Quantity (SQ)	Rate (SR)	Standard Cost
	[A]	[B]	[A x B]
Direct Material	( 1 pound x 4800 units)=4800 pound	$                   7.00	$       33,600.00
Direct labor	( 1.6 hours x 4800 units)=7680 hours	$                12.00	$       92,160.00
Variable Overhead	( 1.6 hours x 4800 units)=7680 hours	$                   7.50	$       57,600.00

• Requirement 1

Material Price Variance
(	Standard Rate	-	Actual Rate	)	x	Actual Quantity
(	$                                7.00	-	$                       7.20	)	x	5100
	-1020
	Variance		$              1,020.00			Unfavourable-U
Material Quantity Variance
(	Standard Quantity	-	Actual Quantity	)	x	Standard Rate
(	4800	-	5100	)	x	$                           7.00
	-2100
	Variance		$              2,100.00			Unfavourable-U

• Requirement 2

Labor Rate Variance
(	Standard Rate	-	Actual Rate	)	x	Actual Labor Hours
(	$                              12.00	-	$                    12.50	)	x	7400
	-3700
	Variance		$              3,700.00			Unfavourable-U
Labour Efficiency Variance
(	Standard Hours	-	Actual Hours	)	x	Standard Rate
(	7680	-	7400	)	x	$                        12.00
	3360
	Variance		$              3,360.00			Favourable-F

• Requirement 3

Variable Overhead Rate Variance
(	Standard Rate	-	Actual Rate	)	x	Actual Labor Hours
(	$                                7.50	-	$                       8.07	)	x	7400
	-4200
	Variance		$              4,200.00			Unfavourable-U
Variable Overhead Efficiency Variance
(	Standard Hours	-	Actual Hours	)	x	Standard Rate
(	7680	-	7400	)	x	$                           7.50
	2100
	Variance		$              2,100.00			Favourable-F