Problem 10-12 Basic Variance Analysis; the Impact of Variances on Unit Costs [LO

Question

Problem 10-12 Basic Variance Analysis; the Impact of Variances on Unit Costs [LO1, LO2, LO3] Landers 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: 1.60 feet at $3.00 per foot $4.80 $ 4.96 Actual: 1.55 feet at $3.20 per foot Standard: 0.80 hours at $16.00 per hour Actual: 0.85 hours at $15.40 per hour Standard: 0.80 hours at $4.00 per hour Direct labor 12.80 13.09 Variable overhead: 3.20 Actual: 0.85 hours at $3.60 per hour 3.06 Total cost per unit s20.80 21.11 Excess of actual cost over standard cost per unit $0.31 The production superintendent was pleased when he saw this report and commented: "This $0.31 excess cost is well within the 1 percent limit management has set for acceptable variances. It's obvious that there's not much to worry about with this product. Actual production for the month was 11,000 units. Variable overhead cost is assigned to products on the basis of direct labor-hours. There were no beginning or ending inventories of materials. Required 1. Compute the following variances for May: a. Materials price and quantity variances. (Input all amounts as positive values. Leave no cells blank be certain to enter "O" wherever required. Indicate the effect of each variance by selecting "F" for favorable, "U" for unfavorable, and "None" for no effect (i.e., zero variance) Omit the "$" sign in your response.) Materials price variance (Click to select) Materials quantity variance (Click to select)

Explanation / Answer

1)

Part A)

The material price and quantity variance can be calculated with the use of following formulas:

Material Price Variance = Actual Materials*(Actual Rate - Standard Rate)

Material Quantity Variance = Standard Rate*(Actual Quantity of Material Used - Standard Quantity of Material for Actual Production)

________

Using the values provided in the question, we get,

Material Price Variance = 11,000*1.55*(3.20 - 3) = $3,410 (U)

Material Quantity Variance = 3*(11,000*1.55 - 11,000*1.60) = $1,650 (F)

________

Part B)

The labor rate and efficiency variance can be calculated with the use of following formulas:

Labor Rate Variance = Actual Hours*(Actual Rate - Standard Rate)

Labor Efficiency Variance = Standard Rate*(Actual Direct Hours - Standard Hours for Actual Production)

________

Using the values provided in the question, we get,

Labor Rate Variance = 11,000*.85*(15.40 - 16) = $5,610 (F)

Labor Efficiency Variance = 16*(11,000*.85 - 11,000*.80) = $8,800 (U)

Part B)

The variable overhead rate and efficiency variance can be calculated with the use of following formulas:

Variable Overhead Rate Variance = Actual Hours*(Actual Variable Overhead Rate - Standard Variable Overhead Rate)

Variable Overhead Efficiency Variance = Standard Variable Overhead Rate*(Actual Direct Hours - Standard Hours for Actual Production)

________

Using the values provided in the question, we get,

Variable Overhead Rate Variance = 11,000*.85*(3.60 - 4) = $3,740 (F)

Variable Overhead Efficiency Variance = 4*(11,000*.85 - 11,000*.80) = $2,200 (U)

________

2)

The table is provided below:

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3)

The table is provided below:

Materials: Quantity Variance .15 (1,650/11,000) F Price Variance .31 (3,410/11,000) U .16 (.31 - .15) U Labor: Efficiency Variance .80 (8,800/11,000) U Rate Variance .51 (5,610/11,000) F .29 (.80 - .51) U Variable Overhead: Efficiency Variance .20 (2,200/11,000) U Rate Variance .34 (3,740/11,000) F .14 (.34 - .20) F Excess of Actual Over Standard Cost Per Unit $0.31 U

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