Question

6 Question 1: Five brothers Company's budget and actual costs per unit are provided below for the most recent period. During this period, 800 units were actually produced. Product Budget Product Cost Actual Cost Materials Metres Unit Price Per Metre Budget $5.00 $30.00 Actual 6.2 $4.80 $29.76 Direct labour Hours Hourly Rate Budget 5 $5.001 $25.00 Actual 4.8 $5.50 $26.40 Variable overhead Hours Hourly Rate Budget $4.001 $20.00 Actual 4.9 $4.101 $20.09 Total unit cost $75.00 $76.25 S Required: Given the information above, compute the following variances. Also indicate if the variances are favorable or unfavorable. 1. Materials price variance 2. Materials quantity variance 3. Direct labour rate variance 4. Direct labour efficiency variance 5. Variable overhead rate variance 6. Variable overhead efficiency variance 7. Please give some managerial suggestions based on your calculation.

Answer 1

Direct Materials Variance Dividing Data ACTUAL COST Flexible Budget (Standard) Actual Quantity used Actual Quantity used 4960 (800*6.20) $4.80 X 4960 (800*6.20) $5.00 Standard Quantity х Standard price per unit 4800 (800*6) $5.00 Actual price Standard price per unit Total Actual cost $23,808 Total $24,800 Total $24,000 Price Variance $992 F Quantity Variance $800 U Direct Labor Variance Dividing Data ACTUAL COST Flexible Budget (Standard) Actual Quantity used Actual Quantity used Standard Quantity 3840 (800*4.80) $5.50 X 3840 (800*4.80) $5.00 4000 (800*5) $5.00 Actual price per hr Standard price per hr Standard price per hr Total Actual cost $21,120 Total $19,200 Total $20,000 Rate Variance $1,920 U Efficiency Variance $800 F Variable OH Variance Dividing Data ACTUAL COST Flexible Budget (Standard) Actual Quantity used Actual Quantity used Standard Quantity 3920 (800*4.90) $4.10 X 3920 (800*4.90) $4.00 4000 (800*5) $4.00 Actual price per hr Standard price per hr Standard price per hr Total Actual cost $16,072 Total $15,680 Total $16,000 Rate Variance $392 U Efficiency Variance $320 F Conclusion 1. Material Price Variance $992 F 2. Material Quantity Variance $800 U 3. Labor Rate Variance $1,920 U 4. Labor Efficiency Variance $800 F 5. Variable OH Rate Variance $392 U 6. Variable OH Efficiency Variance $320 F 7. Suggestions - a) Be more efficient in using the materials b) Control the actual costs of labor and Variable OH.