Question

Triple Star Company's standard and actual costs per unit are provided below for the most recent per During this period, 500 units were actually produced. Product Standard Cost Product Actual Cost Metres $8.00 4 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 3.2 $20.80 Hours Hourly Rate $6.00 2 2.2 $3.00 $3.10 $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 1

Solution

1	Material Price Variance	$               205.00	Favourable-F
2	Material quantity variance	$               100.00	Unfavourable-U
3	Labor rate variance	$               800.00	Favourable-F
4	Labor Efficiency variance	$               700.00	Unfavourable-U
5	Variable Overhead Rate Variance	$               110.00	Unfavourable-U
6	Variable Overhead Efficiency Variance	$               300.00	Unfavourable-U

.

Requirement 7

Labor efficiency needs to be improved as well as the material needs to be used properly

.

Working

Actual DATA for		500	Units
	Quantity (AQ)	Rate (AR)	Actual Cost
Direct Material	2050	$            1.90	$            3,895.00
Direct labor	1600	$            6.50	$          10,400.00
Variable Overhead	1100	$            3.10	$            3,410.00

.

Standard DATA for		500	Units
	Quantity (SQ)	Rate (SR)	Standard Cost
	[A]	[B]	[A x B]
Direct Material	( 4 meters x 500 Units)=2000 meters	$                   2.00	$               4,000.00
Direct labor	( 3 Hour x 500 Units)=1500 Hour	$                   7.00	$            10,500.00
Variable Overhead	( 2 Hour x 500 Units)=1000 Hour	$                   3.00	$               3,000.00

.

Material Price Variance
(	Standard Rate	-	Actual Rate	)	x	Actual Quantity
(	$                    2.00	-	$                        1.90	)	x	2050
	205
	Variance		$                   205.00			Favourable-F
Material Quantity Variance
(	Standard Quantity	-	Actual Quantity	)	x	Standard Rate
(	2000	-	2050	)	x	$              2.00
	-100
	Variance		$                   100.00			Unfavourable-U

.

Labor Rate Variance
(	Standard Rate	-	Actual Rate	)	x	Actual Labor Hours
(	$                    7.00	-	$                        6.50	)	x	1600
	800
	Variance		$                   800.00			Favourable-F
Labour Efficiency Variance
(	Standard Hours	-	Actual Hours	)	x	Standard Rate
(	1500	-	1600	)	x	$              7.00
	-700
	Variance		$                   700.00			Unfavourable-U

.

Variable Overhead Rate Variance
(	Standard Rate	-	Actual Rate	)	x	Actual Labor Hours
(	$                    3.00	-	$                        3.10	)	x	1100
	$             (110.00)
	Variance		$                   110.00			Unfavourable-U
Variable Overhead Efficiency Variance
(	Standard Hours	-	Actual Hours	)	x	Standard Rate
(	1000	-	1100	)	x	$              3.00
	$             (300.00)
	Variance		$                   300.00			Unfavourable-U