Question

Orville Company’s standard and actual costs per unit are provided below for the most recent period. During this time period 650 units were actually produced.

	Standard	Actual
Materials:
Standard: 2.5 metres at $2.7 per m.	$6.75
Actual: 2.1 metres at $2.60 per m.		$5.46
Direct labour:
Standard: 1.6 hrs. at $8.40 per hr.	13.44
Actual: 1.7 hrs. at $8.50 per hr.		14.45
Variable overhead:
Standard: 1.6 hrs. at $4.70 per hr.	7.52
Actual: 1.7 hrs. at $4.20 per hr.		7.14
Total unit cost	$27.71	$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)

3. Direct labour rate variance                                                                                           (2 marks)

4. Direct labour efficiency variance                                                                                (2 marks)

5. Variable overhead efficiency variance                                                                     (2 marks)

                     6.        Variable overhead spending variance                                                                           

Answer 1

Solution-

1) Material Price Variance =(Actual Price - Standard Price) * Actual Quantity

= ($2.60-$2.70) * 1365

= $136.5(F)

Actual Quantity = 650*2.1 = 1365

2) Material Quantity Variance = (Actual Quantity - Standard Quantity ) * Standard Price

= (1365 - 1625 ) * $2.7

= $702(F)

Standard Quantity = 650* 2.5 = 1625

3) Direct Labor rate variance = (Actual rate - Standard rate ) * Actual hours

= ($8.50-$8.40) * 1105

= $110.5 (U)

Actual hours = 650 *1.7 =1105

4) Direct labor efficiency variance = (Actual hours - Standard hours) * Standard rate

= (1105 - 1040 ) * $8.40

= $546(U)

Standard hours = 650*1.6 = 1040

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

= (1105 - 1040) * $4.70

=$305.5(U)

Actual hours = 650 *1.7 =1105

Standard hours = 650 *1.6 =1040

6) Variable overhead spending variance = (Actual rate - Standard rate ) * Actual hours

=( $4.20 - $4.70) * 1105

= $552.5(F)