Question

Orville Company's standard and actual costs per unit are provided below for the most recent period. During this time period 635 units were actually produced. Standard Actual Materials: Standard: 2.4 mistres at $2.40 per m. $5.76 Actual: 2.1 metres at $2.60 per m. S5.46 Direct labour: Standard: 1.4 hrs at $8.20 per hr. 11.48 Actual: 1.7 hrs. at $8.50 per hr. 14.45 Variable overhead: Standard: 1.4 hrs. at $4.50 per hr. 6.30 Actual: 1.7 hrs. at $4.20 per hr. 7.14 Total unit cost $23.54 $27,05 For simplicity, assume there was no inventory of materials at the beginning or end of the period. Required: Given the information above, compute the following variances. Also indicate if the variances are favorable or unfavorable. 1. Materials price variance (2 marks) 2. Materials quantity variance (2 marks)

Answer 1

Answer :

(1) Material price variance = ( Standard price - Actual price ) * Actual Quantity

= ( $ 2.40 - $ 2.60 )*635 unit* 2.10 m

= $ 266.70 U

(2) Material Quanity Variance = ( standard quantity - Actual quantity ) * Standard rate

= ( 635*2.40 m - 635*2.10 m) *$ 2.40

= ( 1524 m - 1333.50 m) * $ 2.40

= $ 457.20 F

(3) Direct Labor rate variance = ( standard rate - actual rate ) * Actual hour

= ( $ 8.20- $ 8.50 ) * 635*1.70hr

= $ 323.85 U

(4) Direct Labor Efficiency variance = ( Standard hour - Actual Hour ) * Standard rate

= ( 635*1.40 hour - 635*1.70 hour ) *$ 8.20

= $ 1562.10 U

(5) Variable overhead efficiency variance = ( Standard hour - Actual Hour ) * Standard rate

   = ( 635*1.40 hour - 635*1.70 hour ) *$ 4.50

= $ 857.25 U

(6) Variable overhead spending variance = ( standard rate - actual rate ) * Actual hour

= ( $ 4.50- $ 4.20) *635*1.70 hour

= $ 323.85 F

Note -1

F = Favorable

U = Unfavorable