Kowaleski Corporation makes a product with the following standard costs: Standar

Question

Kowaleski Corporation makes a product with the following standard costs: Standard Quantity or Hours Standard Price or Rate Direct materials 4.5 grams $ 8.00 per gram Direct labor 0.5 hours $ 15.00 per hour Variable overhead 0.5 hours $ 3.00 per hour In June the company produced 5,000 units using 23,250 grams of the direct material and 2,540 direct labor-hours. During the month the company purchased 24,900 grams of the direct material at a price of $7.80 per gram. The actual direct labor rate was $15.60 per hour and the actual variable overhead rate was $2.90 per hour. The materials price variance is computed when materials are purchased. Variable overhead is applied on the basis of direct labor-hours. Required: Compute the following variances for raw materials, direct labor, and variable overhead, assuming that the price variance for materials is recognized at point of purchase: (Input all amounts as positive values. Do not round intermediate calculations. Leave no cells blank - be certain to enter "0" 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.)

Explanation / Answer

1) Material price variance = (8-7.80)*24900 = 4980 F

Material quantity variance = (5000*4.5-23250)*8 = 6000 U

2) Labour rate variance = (15-15.60)*2540 = 1524 U

Labour efficiency variance = (5000*.50-2540)*15 = 600 U

3) Variable overhead rate variance = (3-2.90)*2540 = 254 F

Variable overhead efficiency variance = (2500-2540)*3 = 120 U

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