Koontz Company manufactures a number of products. The standards relating to one
ID: 2551355 • 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 $1.40 per foot $ 2.52 Actual: 1.75 feet at $1.80 per foot $ 3.15 Direct labor: Standard: 0.90 hours at $17.00 per hour 15.30 Actual: 0.95 hours at $16.40 per hour 15.58 Variable overhead: Standard: 0.90 hours at $6.00 per hour 5.40 Actual: 0.95 hours at $5.60 per hour 5.32 Total cost per unit $ 23.22 $ 24.05 Excess of actual cost over standard cost per unit $ 0.83 The production superintendent was pleased when he saw this report and commented: “This $0.83 excess cost is well within the 5 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. b. Labor rate and efficiency variances. c. Variable overhead rate and efficiency variances. 2. How much of the $0.83 excess unit cost is traceable to each of the variances computed in (1) above. 3. How much of the $0.83 excess unit cost is traceable to apparent inefficient use of labor time?
Explanation / Answer
1 Standard Data: Standard Data for Actual Quanity: Quantity Rate Total Quantity Rate Total Direct Material 1.80 1.40 2.52 Direct Material 19,800 1.40 27,720 Direct Labor 0.90 17.00 15.30 Direct Labor 9,900 17.00 1,68,300 Variable OH 0.90 6.00 5.40 Variable OH 9,900 6.00 59,400 23.22 2,55,420 Actual Data PU Actual Data for Actual Quatity: Quantity Rate Total Quantity Rate Total Direct Material 1.75 1.80 3.15 Direct Material 19,250 1.80 34,650 Direct Labor 0.95 16.40 15.58 Direct Labor 10,450 16.40 1,71,380 Variable OH 0.95 5.60 5.32 Variable OH 10,450 5.60 58,520 24.05 2,64,550 Direct Material Variances Direct Labor Variances Price: (SP-AP)*AQ Used Price: (SP-AP)*AH Used (1.40-1.80)*19250 (17.00-16.40)*10450 -7700 Unfavourable 6270 Favourable Efficiency (SQ-AQ)*SP Efficiency (SH-AH)*SP (19800-19250)*1.40 (9900-10450)*17 770 Favourable -9350 Unfavourable Total -6930 Unfavourable Total -3080 Unfavourable Variable OH Variance Price: (SP-AP)*AQ Used (6.00-5.60)*10450 4180 Favourable Efficiency (SQ-AQ)*SP (9900-10450)*6 -3300 Unfavourable Total 880 Favourable Variance Type Variance PU DM Price Variance -7700 Unfavourable -0.70 DM Eff Variance 770 Favourable 0.07 DL Price Variance 6270 Favourable 0.57 DL Eff Variance -9350 Unfavourable -0.85 Allocated to Labor Efficiency VOH Price Variance 4180 Favourable 0.38 VOH Eff Variance -3300 Unfavourable -0.30 Total -9130 Unfavourable -0.83
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