The Thompson Company uses standard costing and has established the following dir
ID: 2482319 • Letter: T
Question
The Thompson Company uses standard costing and has established the following direct material and direct labor standards for each unit of Lept.
Direct materials: 2 gallons at $4 per gallon
Direct labor: 0.5 hours at $8 per hour
During September, the company made 6,000 Lepts and incurred the following costs:
Direct materials purchased: 13,400 gallons at $4.10 per gallon
Direct materials used: 12,600 gallons
Direct labor used: 2,800 hours at $7.65 per hour
What is the variable overhead rate variance for the month?
A. $5,885 F
B. $1,220 F
C. $5,885 U
D. $1,220 U
The labor efficiency variance for September was:
A. $1,600 favorable
B. $22,400 favorable
C. $33,600 favorable
D. $3,200 favorable
The materials quantity variance for September was:
A. $5,740 unfavorable
B. $5,600 unfavorable
C. $2,460 unfavorable
D. $2,400 unfavorable
The labor rate variance for September was:
A. $980 unfavorable
B. $280 favorable
C. $1,530 unfavorable
D. $980 favorable
The materials price variance for September was:
A. $1,340 unfavorable
B. $1,260 favorable
C. $1,340 favorable
D. $1,260 unfavorable
Explanation / Answer
Solution:
Labor Efficiency Variance --- Correct Answer is A. $1,600 favorable
Labor Efficiency Variance = Standard Rate per hour (Standard Hours for Actual Production – Actual Hours)
Standard Quantity for Actual Production = Actual Production x Standard hours needed for 1 unit = 6,000 x 0.5 hours = 3,000 hours
Labor Efficiency Variance = $8 (3,000 – 2,800) = $1,600 favorable
Material Quantity Variance --- Correct Answer is B. $5,600 unfavorable
Material Quantity Variance = Standard Price (Standard Quantity for Actual Production – Actual Quantity Used)
Standard Quantity for Actual Production = Actual Production x Standard Quantity needed for 1 unit = 6,000 x 2 gallon = 12,000 gallon
Material Quantity Variance = $4 (12,000 – 13,400)
= $5,600 Unfavorable
Labor Rate Variance --- Correct Answer is D. $980 favorable
Labor Rate Variance = Actual Hours (Standard Rate per hour – Actual Rate Per Hour)
= 2,800 ($8 - $7.65)
= $980 Favorable
Material Price Variance ---- Correct Answer is A. $1,340 unfavorable
Material Price Variance = Actual Quantity Purchased (Standard Price – Actual Price)
= 13,400 ($4 - $4.10)
= $1,340 unfavorable
Variable Overhead Rate Variance --- Information about variable overhead is not given in the question… please provide the same and I will submit this variance also..
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