Koontz Company manufactures a number of products. The standards relating to one

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 Standard Cost per Unit Actual Cost per Unit Direct materials Standard: 1.80 feet at $2.40 per foot $4.32 $ 4.55 Actual: 1.75 feet at $2.60 per foot Standard: 0.90 hours at $16.00 per hour Actual: 0.95 hours at $15.40 per hour Standard: 0.90 hours at $4.00 per hour Direct labor: 14.40 14.63 Variable overhead 3.60 Actual: 0.95 hours at $3.60 per hour 3.42 22.32 Total cost per unit $ 22.60 Excess of actual cost over standard cost per unit $0.28 The production superintendent was pleased when he saw this report and commented: "This $0.28 excess cost is well within the 2 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 12,000 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. Indicate the effect of each variance by selecting "F" for favorable, "U" for unfavorable, and "None" for no effect (i.e, zero variance).) Materials price variance Materials quantity variance

Explanation / Answer

a. Material Price Variance $       4,200 U Material Quantity Variance $       1,440 F Working: Material Price Varinace = (Standard Price-Actual Price)*Actual Quantity = (2.40-2.60)*21000 = -4200 Actual Quantity of Material = Actual Output x Actual Quantity per unit of output = 12000 x 1.75 = 21000 Material Quantity Variance = (Standard quantity-Actual Quantity)*standard price per unit = (21600-21000)*2.40 = 1440 Standard Quantity of Material = Actual Output x Standard Quantity per unit of output = 12000 x 1.8 = 21600 b. Labor rate variance $       6,840 F Labor efficiency Valrince $       9,600 U Working: Labor Rate Variance = (Standard rate-Actual rate)*Actual labor hours = (16.00-15.40)*11400 = 6840 Actual labor hours = Actual output x Actual labor hour per unit = 12000 x 0.95 = 11400 Labor efficiency Variance = (Standard hours-Actual hours)*Standard labor rate = (10800-11400)*16.00 = -9600 Standard labor hours = Actual Output x standard labor hour per unit = 12000 x 0.90 = 10800 c. Variable Overhead rate variance $       4,560 F Variable Overhead efficiency variance $       2,400 U Working: Variable Overhead Rate Variance = (Standard rate-Actual rate)*Actual labor hours = (4.00-3.60)*11400 = 4560 Labor efficiency Variance = (Standard hours-Actual hours)*Standard labor rate = (10800-11400)*4.00 = -2400

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