Problem 1013 Basic Variance Analysis the Impact of Variances

Problem 10-13 Basic Variance Analysis; the Impact of Variances on Unit Costs [LO10-1, LO10-2, L Koontz Company manufactures a number of products The standards relating to one of these products are shown below, along with actual cost data for May. Achual Cost per Cost per Direct materials Standard: 1.80 feet at $3.00 per foot Actual: 1.80 feet at $3.30 per foot $ 5.94 Direct labor 16.20 Standard: 090 hours at $18.00 per hour Actual:0.92 hours at $17.50 per hour 16.10 Variable overhead 4.50 Standard: 0.90 hours at $5.00 per hour Actual: 0.92 hours at $4.50 per hour 4.14 $26.18 S0.08 Total cost per unit $26.10 Excess of actual cost over standard cost per unit The production superinbendent was pleased when he saw this report and commented: This $0.08 excess cost is well within the 2 percent limit management has set for acceptable variances. It\'s obvious that there\'s not much to worry about with this product Actual production for the month was 12,000 units. Variable overhead cost is assigned to products on the basis of direct labor-hours. There were no beginning or ending inventories of materials Required: 1, Compute the folowing variances for May a. Materials price and quantity variances. (Input all amounts as positive values. Indicate the effect of each variance by selecting for favorable, \"U\" for unfavorable, and \"None for no effect (ie, zero variance)) Materials price variance Materials quansty variance 2 3 5 6

Solution

1. a) Material price varinace = Standard cost of Actual quantity - Actual cost

   = AQ x SP -AQxAP

   = 12000x5.40- 12000x5.94

   = 6480 (A)

Material quantity variance= Standard cost of standard quantity - standard cost of actual quantity

   = SQxSP-AQxSP

   = 1.8x12000x3-1.8x12000x3

   = 0

b) Labour rate variance = Standard cost of actual time - Actual Cost

   = SRxAH-ARxAH

   =16.2x (.92x12000) - 16.10 x(.92x12000)

   = 1104 (F)

Labour efficiency variance = Standard cost of standard time - Standard time of Actual time

= SHxSR-AHxSR

= .90x12000x18-.92x12000x18

   = 4320 (A)

c) Variable overhead rate variance =Standard variable overhead for production-Actual variable overheads

   =.90x12000x5-.92x12000x4.5

   = 4320 (F)

Variable overhead efficiency variance = Standard variable overhead rate per hour x (Standard hours for actual output-Actual Hours)

= 5 x (.90x12000-.92x12000)

   = 1200 (A)

2.

He was wrong in calculation actual variance is .55/unit

3.

Materials
Price variance (6480/12000)	.54	U
Quantity variance	0	None	.54	U
Labour
Rate variance	.09	F
Effiency variance	.36	U	.27	U
Overhead
Rate variance	.36	F
Effiency variance	.10	U	.26	F
Excess of standard cost per unit			.55	U