Question

Answer 1

Solution 1:

Standard quantity of material for actual test = (500+2500) * 3 = 9000 plates

Actual quantity of material purchased = 12500 plates

Actual quantity of material used = 12500 - 1500 = 11000 plates

Standard price of material = $3.75

Actual price of material = $45,000 / 12500 = $3.60

Material price variance = (SP - AP) * AQ purchased = ($3.75 - $3.60) * 12500 = $1,875 F

Material quantity variance = (SQ - AQ) * SR = (9000 - 11000) * $3.75 = $7,500 U

Solution 2a:

Standard hours of direct labor = 500*0.6 + 2500*0.3 = 1050 hours

Standard rate of direct labor = $11.50 per hour

Actual hours of direct labor = 1500

Actual rate of direct labor = $15,825 / 1500 = $10.55 per hour

Direct labor rate variance = (SR - AR) * AH = ($11.50 - $10.55) * 1500 = $1,425 F

Direct labor efficiency variance = (SH - AH) * SR = (1050 - 1500) * $11.50 = $5,175 U

Solution 2b:

As a standard, one-half of the workers in the lab are senior technicians and one-half are assistants. However valley view hospital employs only one-fourth senior technicians and three-fourths assistants. This is resulting in favorable direct labor rate variance as direct labor rate per hour is $10.55 from standard rate of $11.50 per hour. However as hospital employs more assistant, it is resulting in to extra time taken by assistant from standard time because they in experienced resulting in unfavorable labor efficiency variance. Unfavorable labor efficiency variance is higher than favorable direct labor rate variance, therefore this policy should be discontinued.

Solution 3a:

Standard hours of direct labor = 500*0.6 + 2500*0.3 = 1050 hours

Standard rate of variable overhead= $6.60 per hour

Actual hours of direct labor = 1500

Actual rate of variable overhead = $10,650 / 1500 = $7.10 per hour

Variable overhead rate variance = (SR - AR) * AH = ($6.60 - $7.10) * 1500 = $750 U

Variable overhead efficiency variance = (SH - AH) * SR = (1050 - 1500) * $6.60 = $2,970 U

Solution 3b:

Yes, there is relation between variable overhead efficiency variance and the labor efficiency variance. Variable overhead is based on direct labor hours, therefore if direct labor efficiency variance improves, variable overhead efficiency variance also improve. Both are postively corelated.