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 Actual Cost per Unit Unit Direct materials Standard: 1.80 feet at $2.60 per foot Actual: 1.75 feet at $2.80 per foot $ 4.68 $ 4.9 Direct labor: Standard : .9 hours at $16 . per hour 14·40 Actual: .95 hours at $15.4 per hour 14.63 Variable overhead: Standard: .9 hours at $7.4 per hour 6.66 Actual: .95 hours at $7. per hour 6.65 Total cost per unit $25.74 $26.18 Excess of actual cost over standard cost per unit $0.44 The production superintendent was pleased when he saw this report and commented: "This $0.44 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 14,000 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

Explanation / Answer

Ans. 1 a Material Price Variance   = Actual Quantity * (actual price - standard price) (14000 * 1.75) *(2.80 - 2.60) 24500 * 0.20 4900 U Material Quantity Variance   = Standard price * (actual quantity - standard quantity) 2.60 * [24500 - (14000 * 1.80)] 2.60 * [24500 - 25200] 2.60 * 700 1820 F (b) labor Rate Variance = Actual Hours (Actual rate - Standard rate) (14000 * 0.95) * (15.40 - 16) 13300 * 0.60 7980 F Labor Efficiency variance = Standard Rate (Actual hours - standard hours) 16 * [13300 - (14000 * 0.90)] 16 * [13300 - 12600] 16 * 700 11200 U (c) Variable Overhead Rate Variance = Actual Hours (Actual Rate - Standard Rate) 13300 * (7 - 7.40) 13300 * 0.40 5320 F Variable Overhead Efficiency Variance = Standard Rate (Actual Hours - Standard Hours) 7.40 * (13300 - 12600 7.40 * 700 5180 U Ans. 2 Materials: Price Variance 4900 U/ 14000 0.35 U Quantity Variance 1820 F / 14000 0.13 F 0.22 U Labor: Efficiency Variance 11200 U / 14000 0.8 U Rate Variance 7980 F/ 14000 0.57 F 0.23 U Variable Overhead: Efficiency Variance 5180 U / 14000 0.37 U Rate Variance 5320 F / 14000 0.38 F 0.1 F Excess of actual over standars cost per unit 0.44 U Ans. 3 Excess of actual over standars cost per unit 0.44 U Less: Portion attributable to labor inefficiency Labor efficiency variance 0.8 U Variable overhead efficiency variance 0.37 U 1.17 U Portion due to other variances -0.73 Favourable

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