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.

The production superintendent was pleased when he saw this report and commented: “This $0.34 excess cost is well within the 2 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 $0.34 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 $0.34 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.)

Standard Cost per Unit Actual Cost per Unit Direct materials: Standard: 1.80 feet at $2.20 per foot $ 3.96 Actual: 1.75 feet at $2.40 per foot $ 4.20 Direct labor: Standard: 0.90 hours at $18.00 per hour 16.20 Actual: 0.95 hours at $17.40 per hour 16.53 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 $ 22.86 $ 23.20 Excess of actual cost over standard cost per unit $ 0.34

Explanation / Answer

1…. a. Materials price and quantity variances Material Price Variance= (Standard Price-Actual price)*Actual quantity (2.20-2.40)*(12000*1.75) -4200 UF Material Quantity Variance= (Standard quantity allowed for actual production-Actual quantity)*Std.price ((1.80*12000)-(1.75*12000))*2.20 1320 F Total Material Cost Variance= (Std. Qty. allowed for actual production* Std.Price)-(Actual qty.*Actual Price) ((12000*1.80)* 2.20)-((12000*1.75)*2.40) -2880 UF TMCV=MPV+MQV 2880 UF=4200(UF)+1320(F) b. Labor rate and efficiency variances Labor Rate Variance= (Standard Rate-Actual Rate)*Actual hours (18-17.40)*(12000*0.95) 6840 F Labor Efficiency Variance= (Standard hrs. allowed for actual production-Actual hrs.)*Std.Rate/hr. ((0.90*12000)-(0.95*12000))*18 -10800 UF Total Labor Cost Variance= (Std hrs. allowed for actual production* Std.Rate)-(Actual hrs.*Actual Rate ((12000*0.90)* 18)-((12000*0.95)*17.40) -3960 UF TLCV=LRV+LEV 3960 UF=6840(F)+10800(UF) c. Variable overhead rate and efficiency variances VOH Rate Variance= (Standard Rate-Actual Rate)*Actual hours (3-2.60)*(12000*0.95) 4560 F VOH Efficiency Variance= (Standard hrs. allowed for actual production-Actual hrs.)*Std.Rate/hr. ((0.90*12000)-(0.95*12000))*3 -1800 UF Total VOH Cost Variance= (Std hrs. allowed for actual production* Std.Rate)-(Actual hrs.*Actual Rate ((12000*0.90)*3)-((12000*0.95)*2.60) 2760 F TVOHCV=VOHRV+VOHEV 2760 F=4560(F)+1800(UF) Answers 2 & 3 Variance / Unit F UF MPV (2.2-2.4)*1.75= 0.35 MQV (1.8-1.75)*2.2= 0.11 LRV (18-17.4)*0.95= 0.57 LEV (0.9-0.95)*18= 0.9 VOHRV (3-2.6)*0.95= 0.38 VOHEV (0.9-0.95)*3= 0.15 1.06 1.4 Net Variance per unit 0.34 3. Variance traceable to apparent inefficient use of labor time= $ 0.90

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