Question

Bovar Company began the manufacture of new paging machines. The company installed a standard costing system to account for manufacturing costs. The standard cost per unit is:

              Direct materials   3 pound @ $5 per pound

              Direct labor         .5 hours @ $20 per direct labor hour

              Variable overhead       75% of direct labor cost

Actual production was 4,000 units; actual sales were 2,500 units.

There is no beginning inventory for direct materials.

Other data are:

1. Materials price variance is $3,250 unfavorable.
2. Materials efficiency variance is $2,500 favorable.
3. Direct labor rate variance is $2,100 favorable.
4. Direct labor efficiency variance is $2,000 unfavorable.
5. Revenue was $125,000.
6. Purchases of direct materials is $68,250.
7. Actual variable overhead is $29,000.

REQUIRED:

1. Determine the following factors:

1. standard hours allowed for actual production
2. actual direct labor hours worked
3. actual direct labor wage rate per hour
4. standard quantity of materials allowed for production
5. actual quantity of materials used
6. actual quantity of direct materials purchased
7. actual direct materials price per pound
8. variable overhead spending variance
1. variable overhead efficiency variance

Answer 1

Ans. A	Standard hours allowed = Actual output * standard hours per unit of output
	4,000 units * 0.5 hours
	2,000 hours
Ans. B	Labor efficiency variance = (Actual hours - Standard hours) * Standard rate
	$2,000 = (Actual hours - 2,000) * $20
	$2,000 / $20 = Actual hours - 2,000
	100 = Actual hours - 2,000
	Actual hours = 2,000 + 100
	Actual hours = 2,100
Ans. C	Labor rate variance = (Standard rate - Actual rate) * Actual hours
	$2,100   = ($20 - Actual rate) * 2,100
	$2,100 / 2,100   =   $20 - Actual rate
	$1 = $20 - Actual rate
	Actual rate = $20 - $1
	Actual rate = $19 per hour
Ans. D	Standard quantity = Actual output * standard quantity per unit of output
	4,000 units * 3 pounds
	12,000 pounds

Ans.	Variable overheads are based on direct labor hours, so the standard hours will be same
	as standard direct labor hours (2,000)
	Standard variable overhead rate will be 75% of direct labor rate.
	Standard variable rate = $20 * 75%   = $15 per hour
	Actual labor hours =   2,100
	Variable overhead Spending variance =    (Standard overhead rate * Actual direct labor hours) - Actual variable overhead
	($15 * 2,100) - $29,000
	$31,500 - $29,000
	$2,500	favorable
Ans.	Variable overhead efficiency variance =   (Standard hours - Actual hours) * Standard overhead rate
	(2,000 - 2,100) * $15
	(-100) * $15
	-$1,500	or   $1,500 unfavorable
	*If the standard cost, rate and hours are higher than the actual it means the variance is favorable.
	*If the standard cost, rate and hours are lower than the actual it means the variance is unfavorable.