Question

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: 1.80 feet at $3.00 per foot	$	5.40
Actual: 1.80 feet at $3.30 per foot							$	5.94
Direct labor:
Standard: 0.90 hours at $18.00 per hour		16.20
Actual: 0.92 hours at $17.50 per hour								16.10
Variable overhead:
Standard: 0.90 hours at $5.00 per hour		4.50
Actual: 0.92 hours at $4.50 per hour								4.14
Total cost per unit	$	26.10					$	26.18
Excess of actual cost over standard cost per unit				$	0.08

The production superintendent was pleased when he saw this report and commented: “This $0.08 excess cost is well within the 2 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 12,000 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 $0.08 excess unit cost is traceable to each of the variances computed in (1) above.

3. How much of the $0.08 excess unit cost is traceable to apparent inefficient use of labor time?

Answer 1

		Budgeted	Standard	Actual
		Quantity/Hrs	Rate	Amount	Quantity/Hrs	Rate	Amount	Quantity/Hrs	Rate	Amount	Per Unit
	Material-Purchase	1.8	3	5.4	21600	3	64800	21600	3.3	71280	5.94
	Labour	0.9	18	16.2	10800	18	194400	11040	17.5	193200	16.1
	V. Overhead	0.9	5	4.5	10800	5	54000	11040	4.5	49680	4.14
		Total		26.1			313200			314160	26.18

a)	Material Price Variance = (Standard Price - Actual Price ) Actual Quantity Purchased
	6,480	U
	Material Quantity Variance = (Standard quantity - Actual Quantity ) Standard Price
	-	None
b)	Labour Rate Variance = (Standard Rate - Actual Rate) Actual Hrs Worked
	5,520	F
	Labour Efficiency Variance = (Standard Hrs. - Actual Hrs) Standard Rate
	4,320	U
c)	Variable Overhead(OH) Rate Variance = (Standard Rate - Actual Rate ) Actual Machine Hrs Worked
	5,520	F
	Variable OH Efficiency Variance = (Standard hrs. - Actual Hrs) Standard Rate
	1,200	U
Req: 1	Summary:
	Material Price Variance	6,480	U
	Material Quantity Variance	-	None
	Labour Rate Variance	5,520	F
	Labour Efficiency Variance	4,320	U
	Variable Overhead(OH) Rate Variance	5,520	F
	Variable OH Efficiency Variance	1,200	U
Req 2:	Material:
	Price Variance	0.54	U
	Quanity Variance	-	None	0.54	U
	Labor:
	Rate Variance	0.46	F
	Efficiency Variance	0.36	U	0.1	F
	Variable Overhead:
	Rate Variance	0.46	F
	Efficiency Variance	0.10	U	0.36	F
	Excess of actual over standard cost per unit			0.08	U
Req 3:	Excess of actual Over standard cost			0.08	U
	Less: Portion attributable to labor efficiency
	Labour Efficiency Variance	0.36	U
	Variable OH Efficiency Variance	0.10	U	0.46	U
	Portion Due to Other variance			0.38	F