Koontz Company manufactures a number of products. The standards relating to one
ID: 2530474 • 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. Standard Cost per Unit Actual Cost per Unit Direct materials: Standard: 1.80 feet at $2.00 per foot $ 3.60 Actual: 1.75 feet at $2.20 per foot $ 3.85 Direct labor: Standard: 0.90 hours at $14.00 per hour 12.60 Actual: 0.95 hours at $13.40 per hour 12.73 Variable overhead: Standard: 0.90 hours at $3.00 per hour 2.70 Actual: 0.95 hours at $2.60 per hour 2.47 Total cost per unit $ 18.90 $ 19.05 Excess of actual cost over standard cost per unit $ 0.15 The production superintendent was pleased when he saw this report and commented: “This $0.15 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 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).) b. Labor rate and efficiency 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).) c. Variable overhead rate and efficiency 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).) 2. How much of the $0.15 excess unit cost is traceable to each of the variances computed in (1) above. (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). Round your answers to 2 decimal places.) 3. How much of the $0.15 excess unit cost is traceable to apparent inefficient use of labor time? (Input all values as positive amounts. Indicate the effect of each variance by selecting "F" for favorable, "U" for unfavorable, and "None" for no effect (i.e., zero variance). Do not round intermediate calculations. Round your final answers to 2 decimal places.)
Explanation / Answer
(RATES & PRICE VAULES IN $)
Actual Quantity of Input, at Actual Price
(AQ X AP)
Actual Quantity of Input, at Standard Price
(AQ × SP)
Standard Quantity Allowed for Actual Output, at Standard Price
(SQ × SP)
(12000 X 1.75) X 2.2
(12000 X 1.75) X 2
(12000 X 1.80) X 2
21000 X 2.2
21000 X 2
21600 X 2
46200
42000
43200
Material Price Variance = [(AQ X AP) - (AQ × SP)]
= 46200 – 42000
= 4200(Unfavorable)
Material Quantity Variance = [(AQ × SP) - (SQ × SP)]
= 42000 – 43200
= 1200(Favorable)
Actual Hours of Input, at Actual Rate
(AH X AR)
Actual Hours of Input, at Standard Rate
(AH × SR)
Standard Hours Allowed for Actual Output, at Standard Rate
(SH × SR)
(12000 X 0.95) X 13.40
(12000 X 0.95) X 14
(12000 X 0.90) X 14
11400 X 13.40
11400 X 14
10800 X 14
152760
159600
151200
Labor rate Variance = [(AH X AR) - (AH × SR)]
= 152760 – 159600
= 6840(Favorable)
Labor Efficiency Variance = [(AH × SR) - (SH × SR)]
= 159600 – 151200
= 8400(Unfavorable)
Actual Hours of Input, at Actual Rate
(AH X AR)
Actual Hours of Input, at Standard Rate
(AH × SR)
Standard Hours Allowed for Actual Output, at Standard Rate
(SH × SR)
(12000 X 0.95) X 2.6
(12000 X 0.95) X 3
(12000 X 0.90) X 3
11400 X 2.6
11400 X 3
10800 X 3
29640
34200
32400
Variable Overhead Rate Variance = [(AH X AR) - (AH × SR)]
= 29640 – 34200
= 4560(Favorable)
Variable Overhead Efficiency Variance = [(AH × SR) -(SH × SR)]
= 34200 – 32400
= 1800(Unfavorable)
2. Materials Price Variance (4200/12000 units) 0.35 U
Materials Quantity Variance (1200/12000 units) 0.10 F
Labor rate Variance (6840/12000 units) 0.57 F
Labor Efficiency Variance (8400/12000 units) 0.70 U
Variable Overhead Rate Variance (4560/12000 units) 0.38 F
Variable Overhead Efficiency Variance (1800/12000 units) 0.15 U
Excess of actual over standard cost per unit 0.15 U
3. Excess of actual over standard cost per unit 0.15 U
Less portion attributable to labor inefficiency:
Labor Efficiency Variance (0.70 U)
Variable Overhead Efficiency Variance (0.15 U)
Portion due to other variances 0.70 F
The total variance in unit cost for the month would have been favorable by $0.70 rather than unfavorable by $0.15.
Actual Quantity of Input, at Actual Price
(AQ X AP)
Actual Quantity of Input, at Standard Price
(AQ × SP)
Standard Quantity Allowed for Actual Output, at Standard Price
(SQ × SP)
(12000 X 1.75) X 2.2
(12000 X 1.75) X 2
(12000 X 1.80) X 2
21000 X 2.2
21000 X 2
21600 X 2
46200
42000
43200
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