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. Standard Cost per Unit Actual Cost per Unit $ 5.04 $ 5.25 15.30 Direct materials: Standard: 1.80 feet at $2.80 per foot Actual: 1.75 feet at $3.00 per foot Direct labor: Standard: 0.90 hours at $17.00 per hour Actual: 0.95 hours at $16.40 per hour Variable overhead: Standard: 0.90 hours at $7.40 per hour Actual: 0.95 hours at $7.00 per hour Total cost per unit Excess of actual cost over standard cost per unit 15.58 6.66 6.65 $ 27.48 $27.00 $0.48 The production superintendent was pleased when he saw this report and commented: "This $0.48 excess cost is well within the 5 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 14,500 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. c. Variable overhead rate and efficiency variances. 2. How much of the $0.48 excess unit cost is traceable to each of the variances computed in (1) above 3. How much of the $0.48 excess unit cost is traceable to apparent inefficient use of labor time?

Answer 1

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Koontz Company	Finished Units	Input per unit	Input required	Rate per unit	Amount
Answer 1 a
Direct Material Variance
Standard Price allowed for Actual Output at Standard Price	14,500.00	1.80	26,100.00	2.80	73,080.00	A
Actual Quantity of Input used at Standard Price	14,500.00	1.75	25,375.00	2.80	71,050.00	B 1
Quantity Variance (B 1-A)					(2,030.00)	Favorable
Actual Quantity of materials purchased at Standard Price	14,500.00	1.75	25,375.00	2.80	71,050.00	B 2
Actual cost of materials	14,500.00	1.75	25,375.00	3.00	76,125.00	C
Price Variance (C-B 2)					5,075.00	Unfavorable
Total Material Variance					3,045.00	Unfavorable
Answer 1 b
Direct Labor Variance
Standard Hours allowed for Actual Output at Standard Rate	14,500.00	0.90	13,050.00	17.00	221,850.00	D
Actual Hours of Input, at Standard Rate	14,500.00	0.95	13,775.00	17.00	234,175.00	E
Actual Hours of Input, at Actual Rate	14,500.00	0.95	13,775.00	16.40	225,910.00	F
Efficiency Variance (E-D)					12,325.00	Unfavorable
Price Variance (F-E)					(8,265.00)	Favorable
Total Labor Variance (F-D)					4,060.00	Unfavorable
Answer 1 c
Variable Overhead Variance
Standard Hours allowed for Actual Output at Standard Rate	14,500.00	0.90	13,050.00	7.40	96,570.00	G
Actual Hours of Input, at Standard Rate	14,500.00	0.95	13,775.00	7.40	101,935.00	H
Actual Hours of Input, at Actual Rate	14,500.00	0.95	13,775.00	7.00	96,425.00	I
Variable overhead efficiency variance (H-G)					5,365.00	Unfavorable
Variable overhead Rate variance (I-H)					(5,510.00)	Favorable
Total Variable overhead variance (I-G)					(145.00)	Favorable

Answer 2
Total variance	Total variance	Units produced	Variance per unit	Remarks
Total Material Variance	3,045.00	14,500.00	0.21	It means $ 0.21 is related to materials out of total variance of $ 0.48.
Total Labor Variance	4,060.00	14,500.00	0.28	It means $ 0.28 is related to labor out of total variance of $ 0.48.
Total Variable overhead variance	(145.00)	14,500.00	-0.01	It means $ 0.01 is related to overhead out of total variance of $ 0.48.
	6,960.00		0.48
Answer 3
Total variance	Total variance	Units produced	Variance per unit	Remarks
Labor Efficiency Variance	12,325.00	14,500.00	0.85	So labor efficiency variance is $ 0.85 per unit.