Koontz Company manufactures a number of products. The standards relating to one
ID: 2431869 • Letter: K
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.
3.96
12.60
21.06
The production superintendent was pleased when he saw this report and commented: “This $0.24 excess cost is well within the 5 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 13,000 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 $0.24 excess unit cost is traceable to each of the variances computed in (1) above.
3. How much of the $0.24 excess unit cost is traceable to apparent inefficient use of labor time?
Standard Cost per Unit Actual Cost per Unit Direct materials: Standard: 1.80 feet at $2.20 per foot $3.96
Actual: 1.75 feet at $2.40 per foot $ 4.20 Direct labor: Standard: 0.90 hours at $14.00 per hour12.60
Actual: 0.95 hours at $13.40 per hour 12.73 Variable overhead: Standard: 0.90 hours at $5.00 per hour 4.50 Actual: 0.95 hours at $4.60 per hour 4.37 Total cost per unit $21.06
$ 21.30 Excess of actual cost over standard cost per unit $ 0.24Explanation / Answer
Solution INFORMATION TABLE (actual production - 13000 units) Standard Actual Material Material Qty Rate Cost Qty Rate Cost 23400 2.2 51480 22750 2.4 54600 Labour Labour Hour Rate Cost Hour Rate Cost 11700 14 163800 12350 13.4 165490 variable OH Variable OH Hours Rate Cost Hours Rate Cost 11700 5 58500 12350 4.60 56810 Total Cost 273780 Total Cost 276900 a we have, Material Qty variance we have , material price variance (Std qty-Actual Qty)*Std Rate (Std rate-actual rate)*actual qty (23400-22750)*2.2 (2.2-2.4)*22750 1430 favorable -4550 adverse b we have , Labour efficiency variance we have , Labour ratee variance (std hours-actual hours)*std rate (Std rate-actual rate)*actual hours (11700-12350)*14 (14-13.4)*12350 -9100 adverse 7410 Favorable c we have , variable OH efficiency variance we have , Variable OH ratee variance (std hours-actual hours)*std rate (Std rate-actual rate)*actual hours (11700-12350)*5 (5-4.6)*12350 -3250 Adverse 4940 Favorable
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