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 $ 3.60 $ 3.85 18.00 18.43 Direct materials Standard: 1.80 feet at $2.00 per foot Actual: 1.75 feet at $2.20 per foot Direct labor. Standard: 0.90 hours at $20.00 per hour Actual: 0.95 hours at $19.40 per hour Variable overhead: Standard: 0.90 hours at $6.40 per hour Actual: 0.95 hours at $6.00 per hour Total cost per unit Excess of actual cost over standard cost per unit 5.76 5.70 $27.98 $27.36 $0.62 The production superintendent was pleased when he saw this report and commented: "This $0.62 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 12,500 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 $0.62 excess unit cost is traceable to each of the variances computed in (1) above. 3. How much of the $0.62 excess unit cost is traceable to apparent inefficient use of labor time?

Answer 1

Standard Price percnit - Actual Price per unit) Answers And Explanations. Page-oll 1.9) Materials Price and quantity Variances :- Materials Price Variance x actual raw materials used. = (2.00-2.20 x (1.75 x 12500 unit) 0-20 X 21,815 $4375 unfavourable o Malezial Usage? (standard usage - Actud usage) x standard Variance Price per unit =[[ 1.80 12500) - (1-75 x 12.500 xia 500)]* 2. ( 2 2 500 - 295 2. favourable. 1250 and Efficiency Varianxe. 1. b) Labor Pate Variance • Labor Pate Variance (standard Rate hows - Actual Rato per per hour x Actual hours worked. (20.00-19.40) x (1 95% 12,500 will 0.60 X 11875 : 7125 farowable

Page oa Labor Efficiency Variance (standard hours - Actual hours) x standard rate = [(.90 x 12,500) - C. 95x 12500) per bour (11250 20 per ho. 11,815) x 20 12500 as foverable. Variable Overhead rate and efficiency variance 1.0) Variable overhead ? (standard orale Actual rate rate variance hour & per Der hour. actual hours wooked (6.40-6)(. 95x12500} 40 x 11,875 4750 favourable 0 Variable Overtread rate per hour. Efficieruy variabled? (stocared tows - Actual hea Dx standard (11250 hours x 6.40 11.875 hours . - $ 4000 4000 unfavourable.

Page-03 Amount Tracebler 2) Particulars. 35 Material Price Varianne. (4375 ÷ 12500) 1 F Material Usage Variance. (1250 12,500) 57 Laboo Roite Variance. (7125 + 12500) Laboo Efficiency variance. (12,500+12500) U .38 Variable OrH orate Variance (4750 & 12500) .32 U Variable OH Efficieny Variane (4000 - 12,500) 0.62 u Total Variance [r. 67 U-1050