Question

Question 2 (36 marks) Saka Limited is a company that produces network cables and its sales is growing at a fast speed enjoying great profits and sales figures. The standard and actual costs per unit for the current period, during which 300 units were actually produced, are given below: Standard Actual $12.16 $13.60 36.60 Materials: Standard: 3.8 feet at $3.2 per foot........... Actual: 4 feet at $3.4 per foot ................... Direct labor: Standard: 3.0 hours at $12.2 per hour ......... Actual: 3.2 hours at $12.4 per hour... Variable manufacturing overhead: Standard: 2 hours at $5.8 per hour ............... Actual: 2 hours at $5.4 per hour ........... Total unit cost.............. 39.68 ? $66.16 $70.56 Basically, all of the material purchased during the period would be used in production during the period. The variable manufacturing overhead is based on the direct labor hours. Required: From the foregoing information, compute the following variances. Indicate whether the variance is favorable (F) or unfavorable (U) using either the equation approach or 3 vertical column method: a. Material price variance. b. Material quantity variance. c. Direct labor rate variance. d. Direct labor efficiency variance, e. Variable overhead rate variance. f. Variable overhead efficiency variance. g. Variable spending variance.

Answer 1

Material Price variance = Actual Quantity * (Standard cost - Actual cost)

= 4 feet * (3.2 - 3.4) = 0.8 (U)

Material quantity Variance = Standard cost * (Standard Quantity - Actual Quantity)

= $3.2 * (3.8 - 4) = 0.64(U)

Direct Labor Rate Variance = Actual Hours * (Standard Rate - Actual Rate)

= 3.2 hrs (12.2 - 12.4) = 0.64 (U)

Direct Labor Efficiency variance = Standard Rate * (Standard Hours - Actual Hours)

= 12.2 * (3 -3.2) = 2.44(U)

Standard Variable overhead = 3hrs * 5.8 = $17.4

Actual Variable Overhead = 3.2hrs * 5.4 = $17.28

Variable Overhead rate Variance = Actual hours for variable overhead * (Standard Rate - Actual Rate)

= 3.2 * (5.8 - 5.4) = $1.28 (F)

Variable overhead Efficiency Variance = Standard overhead rate x (Actual hours - Standard hours)

= 5.8 * (3.2 - 3) = $1.16 (F)

Variable Spending Variance = Actual hours worked x (Actual overhead rate - standard overhead rate)

3.2 * (5.5 - 5.4) = $1.28 (F)