Question

Owen limited uses a standard costing system. The standard cost card for one product is shown below.

Direct material                  4kg @$5 per kg                                 20

Direct labour                      2 hour @ $8 per hour                     16

Variable overhead           2 hours @ $3.5 per hour               7

Total variable cost                                                                            43

Fixed overhead                 2 hours @ $7 per hour                   14

Total production cost                                                                     57

Standard selling price                                                                     70

Standard profit margin                                                                   13

The budgeted output and sales was 1000 units. Actual production and sales for the period were 1300 units.

Actual cost and revenue were as follows.

Direct material                  5000 kg costing                                 22,700

Direct labour                      2,850 hours costing                         21,500

Variable overhead                                                                           7,800

Fixed overhead                                                                                 14,600

Sales revenue                   1,300 units @ $68                            88,400

Required:

Calculate the following variances

1. Material usage and price
2. Labour efficiency and rate
3. Variable overheads efficiency and expenditure
4. Fixed overhead efficiency, capacity and expenditure
5. Sales price and sale volume

Answer 1

SQ

Standard Quantity(Kg) for actual output

5200

(4*1300)

AQ

Actual Quantity (Kg)of materials used

5,000

SP

Standard Price per Kg

$5.00

AP

Actual Price per Kg

$4.54

(22700/5000)

AQ*(AP-SP)

Direct Materials Price Variance

$2,300

Favorable

(Actual Price is LESS than Standard Price)

SP*(AQ-SQ)

Direct Materials Usage Variance

$1,000

Favorable

(Actual quantity is LESS than Standard quantity)

DIRECT LABOR VARIANCES

SH

Standard Labor hour for actual output

2600

(2*1300)

SR

Standard Labor rate per hour

$8.00

AH

Actual labor hour used

2850

AR

Actual Labor rate per hour

$7.54

($21500/2850)

AH*(AR-SR)

Direct labor Rate Variance

$1,300

Favorable

(Actual Rate is LESS than Standard Rate)

SR*(AH-SH)

Direct Labor Efficiency   Variance

$2,000

Unfavorable

(Actual hour is MORE than Standard hour)

VARIABLE OVERHEAD VARIANCES

SH

Standard Labor hour for actual output

2600

SR

Standard Overhead rate per hour

$3.50

AH

Actual labor hour used

2850

AR

Actual Overhead rate per hour

$2.74

(7800/2850)

5

AH*(AR-SR)

Variable Overhead Expenditure (Price) Variance

$2,175

Favorable

(Actual Rate is Less than Standard Rate)

6

SR*(AH-SH)

Varable Overhead Efficiency   Variance

$875

Favorable

(Actual hour is Less than Standard hour)

FIXED OVERHEAD VARIANCES

A

Budgeted Fixed Overhead

$14,000

B

Budgeted labor hour

2000

(2*1000)

C=A/B

Budgeted fixed overhead rate

$7

D

Standard Labor hour for actual output

2600

(2*1300)

E=C*D

Fixed overhead applied

$18,200

A-E

Fixed Overhead Volume Variance

$4,200

Unfavorable

F

Budgeted Fixed Overhead

$14,000

G

Actual Fixed Overhead

$14,600

H=F-G

Fixed OverheadSpending Variance

$600

Unfavorable

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