Fastic Corporation makes a product with the following standard costs: Inputs Sta
ID: 2380203 • Letter: F
Question
Fastic Corporation makes a product with the following standard costs:
Inputs
Standard Quantity or hours
Standard Price or Rate
Standard Cost Per Unit
Direct materials
6.9 liters
$ 5 .00 per liter
$ 34.50
Direct labor
0.3 hours
$ 17.00 per hour
$5.10
Variable overhead
0.3 hours
$ 6.00 per hour
$1.80
The company reported the following results concerning this product in August.
Originally Budgeted output
8,6000 units
Actual output
8,400 units
Raw materials used in production
58,330 liters
Actual direct labor-hours
2,310 hours
Purchases of raw materials
62,500 liters
Actual price of raw materials
$ 4.90 per liter
Actual direct labor rate
$ 17.10 per hour
Actual variable overhead rate
$ 5.50 per hour
The materials price variance is recognized when materials are purchased. Variable overhead is applied on the basis of direct labor-hours.
Required:
a. Compute the materials quantity and price variance.
b. Compute the labor efficiency and rate variance.
c. Compute the variable overhead efficiency and rate variance.
d. Comment on the results. u
Inputs
Standard Quantity or hours
Standard Price or Rate
Standard Cost Per Unit
Direct materials
6.9 liters
$ 5 .00 per liter
$ 34.50
Direct labor
0.3 hours
$ 17.00 per hour
$5.10
Variable overhead
0.3 hours
$ 6.00 per hour
$1.80
Explanation / Answer
Required:
a. Compute the materials quantity and price variance.
materials quantity variance = (SQ*SR)-(AQ*SR)
= (6.9*8400*5) - (58330*5)
= $1850 U
materials price variance = (AQ Purchased*SR)-(AQ Purchased*AR)
=(62500*5)-(62500*4.9)
= $6250 F
b. Compute the labor efficiency and rate variance.
the labor efficiency variance = (SH*SR)-(AH*SR)
= (0.3*8400*17)- (2310*17)
=$ 3570 F
the labor rate variance = (AH*SR)-(AH*AR)
=(2310*17) - (2310*17.10)
= $231 U
c. Compute the variable overhead efficiency and rate variance.
the variable overhead efficiency variance = (SH*SR)-(AH*SR)
= (0.3*8400*6)- (2310*6)
=$ 1260 F
the variable overhead rate variance = (AH*SR)-(AH*AR)
=(2310*6) - (2310*5.5)
= $ 1155 F
d. Comment on the results.
On the basis of above variance, the wastage of raw material is increased in compare to budget, whereas market price is decrease in the cost of raw material
The work eficiency of labor & variable overhead is favorable means Labor have achieved there target as compare to budget, their performance is favorable
Actual labor rate has been increased in compare to budget
Variable overhead rate is decreased
Overall company performance is better in compare to standard budget
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