Question

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 Cost Product Actual Cost Metres $30.00 $29.76 Unit Price Per Metre 6 $5.00 6.2. $4.80 Hourly Rate 5 $5.00 4.8 $5.50 Hours Materials Budget Actual Direct labour Budget Actual Variable overhead Budget Actual Total unit cost $25.00 $26.40 Hours Hourly Rate $20.00 5 4.9 $4.00 $4.10 $20.09 $76.25 $75.00 Required: Given the information above, compute the following variances. Also indicate if the variances are favorable or unfavorable. 1. Materials price variance

Answer 1

Materials Standard Actaul Quantity Quantity / Standard Price / Hours (AQ/ Actual Rate / Hours (SQ/SH) / Rate (SP / SR) AH) Rate (AP/ AR) 4800 $ 5.00 4960 $ 4.80 (6*800) (6.2*800) 4000 $ 5.00 3840 $ 5.50 (800*5) (4.8*800) 4000 $ 4.00 3920 $ 4.10 (800*5) (4.9*800) Direct Labour Variable Overhead 1 Material Price Variance (SP-AP) * AQ = (5 -4.8) * 4960 $ 992 Favorable 2 Material Quantity Variance (SQ-AQ) * SP = (4800 - 4960) * 5 $ 800 Unfavorable 3 Direct Labour Rate Variance (SR-AR) * AH = (5 -5.5) * 3840 $ 1,920 Unfavorable 4 Direct Labour Efficiency Variance (SH-AH) * SR = (4000 - 3840) * 5 $ 800 Favorable 5 Variable Overhead Rate Variance (SR-AR) * AH = (4 - 4.1) * 3920 $ 392 Unfavorable 6 Variable Overhead Efficiency Variance (SH-AH) * SR = (4000 - 3920) * 4 $ 320 Favorable 7 Suggestion to Management Direct Labour and Variable Overheads are unfavorable (overall) although it is favorable in their efficiency level, it results more unfavorable in their actual rate comparing to standard rate. It is better to control their rate per unit for direct labour and variable overhead. Materials variance is favorable (overall) although it has Quantity variance unfavorable. It is better to minimize their material waste in their production process to utilise minimum material. Note: Please Comment down for any further clarifications.