Koontz Company manufactures a number of products. The standards relating to one
ID: 2557153 • 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.
6.08
19.00
33.08
The production superintendent was pleased when he saw this report and commented: “This $0.88 excess cost is well within the 4 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 15,500 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 $0.88 excess unit cost is traceable to each of the variances computed in (1) above.
3. How much of the $0.88 excess unit cost is traceable to apparent inefficient use of labor time?
Standard Cost per Unit Actual Cost per Unit Direct materials: Standard: 1.90 feet at $3.20 per foot $6.08
Actual: 1.85 feet at $3.60 per foot $ 6.66 Direct labor: Standard: 1.00 hours at $19.00 per hour19.00
Actual: 1.05 hours at $18.40 per hour 19.32 Variable overhead: Standard: 1.00 hours at $8.00 per hour 8.00 Actual: 1.05 hours at $7.60 per hour 7.98 Total cost per unit $33.08
$ 33.96 Excess of actual cost over standard cost per unit $ 0.88Explanation / Answer
Solution INFORMATION TABLE (for 15500 units) Standard Actual Material Material Qty Rate Cost Qty Rate Cost 29450 3.2 94240 28675 3.6 103230 Labour Labour Hour Rate Cost Hour Rate Cost 15500 19 294500 16275 18.4 299460 Variable OH Variable OH Hours Rate Cost Hours Rate Cost 15500 8 124000 16275 7.6 123690 1 Material Price Variance (Std Rate - Actual Rate)*Actual Qty (3.2-3.6)*28675 -11470 Adverse Material Qty Variance (Std Qty- Actual Qty)* Std Rate (29450-28675)3.2 2480 Favorable 2 Labour Rate Variance (Std Rate - Actual Rate)* Actual hours (19-18.4)*16275 9765 favourable Labour Efficiency Variance (Std Hours - actual hours)*Std Rate -14725 Adverse 3 Variable OH rate Variance44 (Std Rate- Actual rate)* Actual qty (8-7.6)*16275 6510 Favourable Variable oh Efficiency Variance (Std hours -Actual Hours)*Std rate (15500-16275)*8 -6200 Adverse
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