Question

Kropf Inc. has provided the following data concerning one of the products in its standard cost system. Variable manufacturing overhead is applied to products on the basis of direct labor-hours.

Inputs	Standard Quantity or Hours per Unit of Output			Standard Price or Rate
Direct materials		8.90	liters	$	8.50	per liter
Direct labor		0.50	hours	$	29.70	per hour
Variable manufacturing overhead		0.50	hours	$	7.40	per hour

The company has reported the following actual results for the product for September:

Actual output		11,100	units
Raw materials purchased		100,500	liters
Actual cost of raw materials purchased	$	875,500
Raw materials used in production		98,820	liters
Actual direct labor-hours		5,140	hours
Actual direct labor cost	$	160,302
Actual variable overhead cost	$	33,414

Required:

a. Compute the materials price variance for September.

b. Compute the materials quantity variance for September.

c. Compute the labor rate variance for September.

d. Compute the labor efficiency variance for September.

e. Compute the variable overhead rate variance for September.

f. Compute the variable overhead efficiency variance for September.

(Indicate the effect of each variance by selecting "F" for favorable, "U" for unfavorable, and "None" for no effect (i.e., zero variance). Input all amounts as positive values.)

Answer 1

Ans. A	Materials price variance = (Standard price * Actual quantity purchased) - Actual materials purchased cost
		($8.50 * 100,500) - $875,500
		$854,250 - $875,500
		-$21,250	or   $21,250 unfavorable
Ans. B	Materials quantity variance = (Standard quantity - Actual quantity used) * Standard price
		(98,790 - 98,820) * $8.50
		-30* $8.50
		-$255	or   $255 unfavorable
	*Standard quantity = Actual output * Standard quantity per unit of output
		11,100 * 8.90 liters
		98,790 liters
Ans. C	Labor rate variance = (Standard rate * Actual hours) - Actual labor cost
		($29.70 * 5,140) - $160,302
		$152,658 - $160,302
		-$7,644	or   $7,644 unfavorable
Ans. D	Labor efficiency variance = (Standard hours - Actual hours) * Standard rate
		(5,800 - 5,140) * $29.70
		660 * $29.70
		$19,602	Favorable
	Standard hours = Actual units produced and sold * standard hours per unit
		11,600 * 0.50 hours
		5,800 hours
Ans. E	Variable overhead is based on direct labor hours, therefore in the calculation of
	variable overhead variances, the standard and actual direct labor hours will remain same.
	Variable Overhead rate variance = (Standard rate * Actual hours) - Actual variable overhead cost
		($7.40 * 5,140) - $33,414
		$38,036 - $33,414
		$4,622	Favorable
Ans. F	Variable overhead efficiency variance = (Standard hours - Actual hours) * Standard rate
		(5,800 - 5,140) * $7.40
		660 * $7.40
		$4,884	Favorable