Question

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Problem 9-20 Basic Variance Analysis; the Impact of Variances on Unit Costs (LO9-4, LO9-5, LO9-6] 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 Unit Actual Cost per Unit $ 7.60 $ 8.14 17.60 Direct materials: Standard: 1.90 feet at $4.00 per foot Actual: 1.85 feet at $4.40 per foot Direct labor: Standard: 1.10 hours at $16.ee per hour Actual: 1.15 hours at $15.40 per hour Variable overhead: Standard: 1.10 hours at $9.00 per hour Actual: 1.15 hours at $8.60 per hour Total cost per unit Excess of actual cost over standard cost per unit 17.71 9.90 $35.10 9.89 $ 35.74 $0.64 The production superintendent was pleased when he saw this report and commented: "This $0.64 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 17,500 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. Variable overhead rate and efficiency variances

Answer 1

1. Material Price Variance = (Standard price- Actual Price)* Actual quantity used

= (4-4.40) * 17500*1.85

= - 12950

2. Material Quantity variance= (Standard quantity used - Actual quantity used) * Standard rate

= (1.85*17500 - 1.90*17500) * 4

=(32375 - 33250 ) *4

= - 3500

3. Labor rate variance = (Standard Rate - Actual Rate) * Actual hours

= (16 - 15.40) * 1.15*17500

= 12075

4. Labor efficiency variance= (Standard hours to be used- Actual hours used) * Standard Rate

= (1.10*17500 - 1.15*17500) *16

= (19250 - 20125)*16 = -14000