Question

Koontz Company manufactures a number of products. The standards relating to one of these products are...

Koontz Company manufactures a number of products. The standards relating to one of these products are shown below, along with actual cost data for May.

Standard Cost per Unit Actual Cost per Unit
Direct materials:
Standard: 1.90 feet at $4.00 per foot $

7.60

Actual: 1.85 feet at $4.40 per foot $ 8.14
Direct labor:
Standard: 1.10 hours at $16.00 per hour

17.60

Actual: 1.15 hours at $15.40 per hour 17.71
Variable overhead:
Standard: 1.10 hours at $9.00 per hour 9.90
Actual: 1.15 hours at $8.60 per hour 9.89
Total cost per unit $

35.10

$ 35.74
Excess of actual cost over standard cost per unit $ 0.64

The production superintendent was pleased when he saw this report and commented: “This $0.64 excess cost is well within the 4 percent limit management has set for acceptable variances. It's obvious that there's not much to worry about with this product."

Actual production for the month was 17,500 units. Variable overhead cost is assigned to products on the basis of direct labor-hours. There were no beginning or ending inventories of materials.

Required:

1. Compute the following variances for May:

a. Materials price and quantity variances.

b. Labor rate and efficiency variances.

c. Variable overhead rate and efficiency variances.

2. How much of the $0.64 excess unit cost is traceable to each of the variances computed in (1) above.

3. How much of the $0.64 excess unit cost is traceable to apparent inefficient use of labor time?

1a. Compute the following variances for May, materials price and quantity variances.
1b. Compute the following variances for May, labor rate and efficiency variances.
1c. Compute the following variances for May, variable overhead rate and efficiency variances. (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.)

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1a. Materials price variance
Materials quantity variance
1b. Labor rate variance
Labor efficiency variance
1c. Variable overhead rate variance
Variable overhead efficiency variance

How much of the $0.64 excess unit cost is traceable to each of the variances computed in (1) above. (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. Round your answers to 2 decimal places.)

Materials:
Price variance
Quantity variance
Labor:
Rate variance
Efficiency variance
Variable overhead:
Rate variance
Efficiency variance
Excess of actual over standard cost per unit

How much of the $0.64 excess unit cost is traceable to apparent inefficient use of labor time? (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. Do not round intermediate calculations. Round your final answers to 2 decimal places.)

Excess of actual over standard cost per unit
Less portion attributable to labor inefficiency:
Labor efficiency variance
Variable overhead efficiency variance
Portion due to other variances

Homework Answers

Answer #1

1a

Material price variance = (Actual quantity) * (Standard price - Actual price) = (17500 * 1.85) * (4.00-4.40) = -$12,950

i.e. $12,950 unfavourable

Material quantity variance = Standard price * (Standard quantity - Actual quantity) = 4.00 * (17500*1.90 - 17500*1.85) = $3,500 favourable

1b

Labor rate variance = Actual hours * (Standard rate - Actual rate) = (17500*1.15) * ( 16.00 - 15.40) = $12,075 favourable

Labor efficience variance = Standard rate * (Standard hours - Actual hours) = 16.00 * (17500*1.10 - 17500*1.15) = -$14,000 i.e. $14,000 unfavourable

1c

Variable overhead rate variance = Actual hours * (Standard rate - Actual rate) = (17500*1.15) * (9.00 - 8.60) = $8,050 favourable

Variable overhead efficiency variance = Standard rate * (Standard hours - Actual hours) = 9.00 * (17500*1.1 - 17500*1.15) = -$7,875 i.e. unfavourable

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