Koontz Company manufactures a number of products. The standards relating to one
ID: 2445947 • 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.
The production superintendent was pleased when he saw this report and commented: “This $0.88 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 15,500 units. Variable overhead cost is assigned to products on the basis of direct labor-hours. There were no beginning or ending inventories of materials.
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.
Explanation / Answer
1)
a. Material Price variance = (Actual Price - Standard Price) x Actual quantity
MPV = ($3.60 - $3.20)per foot x (15,500 x 1.85)feet = $11,470 UF
b. Material Quantity variance = Standard Price x (Actual Quantity - Standard Quantity)
MQV = $3.20 per foot x (( 15,500 x1.85)feet - (15,500 x 1.90)feet = $2480 F
c. Labour rate variance = (Actual rate - standard rate) x Actual Hours
LRV = ($18.40 - $19) x (1.05 x 15,500) = $9,765 F
d.Labour Efficiency Rate = Standard rate (Actual hours - standard hours)
LER = $19 x ((1.05 x 15500 ) -(1 x 15,500) = $14,725 UF
e. Variable overhead variance = (Actual rate - standard rate) x Actual Hours
VOV = ($7.60 - $8) x (1.05 x 15,500) = $6,510 F
Variable overhead Efficiency Variance = Standard rate (Actual hours - standard hours)
VOE = $8 x ((1.05 x 15500 ) -(1 x 15,500) = $6,200 UF
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