Question

Question:

Waterways Continuing Problem 12 At the end of June the manager of the B.C. manufacturing plant was provided with the following variance analysis report: Favourable (F)/ Unfavourable (U) Budget Actual Variance Production in units 310,000 323,000 13,000 Production costs: Direct material $(11,781) (25,440) (4,538) $737,800 $749,581 U Direct labour Variable overhead costs Fixed overhead costs 1,395,000 131,750 147,250 1,420,440 U 136,288 U 139,870 7,380 F Total production costs $(34,379) $2,411,800 $2,446,179 U The manager immediately called the production supervisor, demanding an explanation for the large unfavourable variance for the quarter. The production supervisor was puzzled. He thought the cost-cutting measures they had incorporated were beginning to work. He certainly wasn't expecting such a large discrepancy. The standard rates the plant was using with its normal costing system are summarized below. Volume Cost 1.40 kg per unit 0.25 hour per unit $18.00 per hour $1.70 per kg Direct material Direct labour Predetermined overhead rate Variable 0.25 hour per unit 0.25 hour per unit $1.70 per hour $1.90 per hour Fixed Other relevant information: A total of 460,000 kg of direct materials were purchased during the quarter at a cost of $1.90 per kilogram. A total of 440,930 kg of direct materials were used in production to manufacture 323,000 units. Payroll recorded 79,800 direct labour hours at an average cost of $17.80 per hour. 1. 2. 3.

Answer 1

(A)

Material price variance = actual quantity purchased x (standard price - actual price)

= 460000 x ($1.70 - $1.90)

= $92000 Unfavorable

(B)

Material quantity variance = standard price x (standard quantity - actual quantity used)

= $1.70 x (452200 - 440930)

= $19159 Favorable

Where,

Standard quantity = actual output x standard quantity per unit of output

= 323000 x 1.40 = 452200

(C)

Labor price variance = actual hours x (standard rate - actual rate)

= 79800 x ($18 - $17.80)

= $15960 Favorable

(D)

Labor efficiency variance = standard rate x (standard hours - actual hours)

= $18 x (80750 - 79800)

= $17100 Favorable

Where,

Standard hours = actual output x standard hours per unit of output

= 323000 x 0.25 = 80750 hours