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		7.4	liters	$	7.00	per liter
Direct labor		0.70	hours	$	21.70	per hour
Variable manufacturing overhead		0.70	hours	$	5.90	per hour

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

Actual output		9,600	units
Raw materials purchased		75,000	liters
Actual cost of raw materials purchased		562,500
Raw materials used in production		71,050	liters
Actual direct labor-hours		6,410	hours
Actual direct labor cost	$	142,302
Actual variable overhead cost	$	34,614

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

Answer 1

a. Materials price variance = (Standard price - actual price) x Material purchased
= {$7 - ($562,500 / 75,000)} x 75,000 = $37,500 Unfavorable

b. Materials quantity variance = (Standard quantity - actual quantity used) x standard price
= {(9,600 x 7.4) - 71,050} x $7 = $70 Unfavorable

c. Labor rate variance = (Standard rate - actual rate) x Actual hours used
= {$21.70 - ($142,302 / 6,410) x 6,410 = $3,205 Unfavorable

d. Labor efficiency variance = (Standard hours - actual hours) x Standard rate
= {(9,600 x 0.70) - 6,410} x $21.70 = $6,727 Favorable

e. Variable overhead rate variance = (Standard rate - actual rate) x Actual hours used
= {$5.90 - ($34,614 / 6,410) x 6,410 = $3,305 Favorable

f. Variable overhead efficiency variance = (Standard hours - actual hours) x Standard rate
= {(9,600 x 0.70) - 6,410} x $5.90 = $1,829 Favorable