Question

ABC Company plans to manufacture 6,000 units for the coming year: The calculation for a unit is:
Direct material 20 kg à 50 SEK/kg
Direct labor costs 11 hours à 160 SEK/hours
Material variable overhead costs 7.50 SEK/kg
Manufacturing variable overhead costs 12.50 SEK/hour
Standard manufacturing costs
The material overhead costs is allocated with direct material costs and the manufacturing overhead costs is allocated with the total direct labor costs. During the year, 8 000 units were manufactured, with the following costs being obtained:
Direct material costs 8 448 000 SEK usage 176 000 kg
Direct labor costs 14 880 000 SEK usage 96 000 hours
Material variable overhead costs 1 232 000 SEK
Manufacturing variable overhead costs 1 152 000 SEK
Make a variance analysis and answer the following questions (a) – (e).
(a) How large is the price variance for direct material costs? (round to SEK, if negative use -)
(b) How large is the usage variance for direct material? (round to SEK, if negative use -)
(c) How large is the wage rate variance for direct labour costs? (round to SEK, if negative use -)
(d) How large is the spending variance for the variable material overhead costs? (round to SEK, if negativ use -)

Answer 1

(a) Standard Rate of Material= 50 SEK/kg

Actual Rate= 8448000SEK/176000 kg= 48 SEK/kg

Material Price Variance= (Standard Rate-Actual Rate)*Actual Quantity

=(50-48)*176000

= 352000(Favourable)

(b) Standard Material= 20 kg per unit

Actual Output=8000 units

Standard Material for Actual Output= 8000units* 20 kgs

= 160000 kg

Material Usage Variance= (Standard Quantity-Actual Quantity)*Standard Rate

=(160000-176000)*50

= -800000(Unfavourable)

(c) Standard Rate of Labour= 160 SEK/hour

Actual Rate of Labour=14880000SEK/96000 hours

=155 SEK/hour

Actual Hours= 96000 hours

Wage Rate Variance= (Standard Rate-Actual Rate)* Actual Hours

=(160-155)*96000 hours

=480000(Favourable)

(d) Material Variable Overhead Variance=( Standard Output*Standard Rate)-(Actual Output* Actual Rate)

=(6000*20*7.5)-1232000

= -332000(unfavourable)