Question

Triple Star Company's standard and actual costs per unit are provided below for the most recent period During this period, 500 units were actually produced. Product Standard Cost Product Actual Cost Metres 4 $8.00 4.1 $7.79 Unit Price Per Metre $2.00 $1.90 Hourly Rate $7.00 $6.50 Hours Materials Standard Actual Direct labour Standard Actual Variable overhead Standard Actual Total unit cost $21.00 3.2 $20.80 Hours Hourly Rate $6.00 $3.00 $3.10 2.2 1 $6.82 $35.41 $35.00 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=

Answer 1

Question 1

Material Price Variance = (Standard Rate - Actual Rate) * Actual Quantity of Material Used

Standard Rate = $ 2 per Metre

Actual Rate = $ 1.90 per Metre

Actual Quantity of Material Used = 500 Units * 4.1 Metre per Unit = 2,050 Metres

Material Price Variance = (2 - 1.90) * 2,050

Material Price Variance = $ 205 Favourable Variance

Question 2

Material Quantity Variance = (Standard Quantity of Material for Actual Output - Actual Quantity of Material Used) * Standard Rate

Standard Rate = $ 2 per Metre

Actual Quantity of Material Used = 2,050 Metres

Standard Quantity of Material for Actual Output = 500 Units * 4 Metre per Unit = 2,000 Metres

Material Quantity Variance = (2,000 - 2,050) * 2

Material Quantity Variance = ($ 100) Unfavorable Variance

Question 3

Direct Labour Rate Variance = (Standard Rate per Labour Hour - Actual Rate per Labour Hour) * Actual Hours paid

Standard Rate per Labour Hour = $ 7

Actual Date per Labour Hour = $ 6.50

Actual Hours Paid = 500 Units * 3.20 Hours per Unit = 1,600 Hours

Direct Labour Rate Variance = (7 - 6.50) * 1,600

Direct Labour Rate Variance = $ 800 Favourable Variance

Question 4

Direct Labour Efficiency Variance = (Standard Hours for Actual Output - Actual Hours Worked) * Standard Rate per Direct Labour Hour

Standard Rate per Labour Hour = $ 7

Actual Hours Worked = 1,600 Hours

Standard Hours for Actual Output = 500 Units * 3 Hours per Unit = 1,500 Hours

Direct Labour Efficiency Variance = (1500 - 1600) * 7

Direct Labour Efficiency Variance = ( $ 700) Unfavorable Variance

Question 5

Variable Overhead Rate Variance = (Standard Rate per Hour - Actual Rate per Hour) * Actual Hours Worked

Standard Rate per Hour = $ 3

Actual Rate per Hour = $ 3.10

Actual Hours Worked = 500 Units * 2.2 Hours per Unit = 1,100 Hours

Variable Overhead Rate Variance = (3 - 3.10) * 1,100

Variable Overhead Rate Variance = ($ 110) Unfavorable Variance

Question 6

Variable Overhead Efficiency Variance = (Standard Hours for Actual Output - Actual Hours Worked ) * Standard Variable Overhead Rate per Hour

Standard Variable Overhead Rate per Hour = $ 3

Actual Hours Worked = 1,100 Hours

Standard hours for Actual Output = 500 Units * 2 Hour per Unit = 1000 Hours

Variable Overhead Efficiency Variance = (1,000 - 1,100) * $ 3

Variable Overhead Efficiency Variance = ($ 300) Unfavorable Variance

Question 7

Company has performed very well in keeping it's material and labour variances under control but the Unfavorable Overhead Variances requires immediate attention to find out the gaps for the shortfall in the final results. The materials and labour variance sare under control becuase the deficiency in one is fulfilled by the other. for example increases in material usage and labour is compensated by the reduced prices but in the case it didn't happen. Actual Overhead Rate and Usage were more than that of the standard being setup by the company due to which it shows undesirable results. The need is to fix those gaps and set the standard according to the more realistic situation keeping in mind.