Homework: Week #5 Chapter #8 Save Score: 0 of 1 pt P23-27A (similar to) Headset

Question

Homework: Week #5 Chapter #8 Save Score: 0 of 1 pt P23-27A (similar to) Headset manufactures headphone cases. During September 2016, the company produced and sold 105,000 cases and recorded the following cost data: 5 of 6 (4 complete) HW Score: 66.67%, 4 of 6 pts Question Help (Click the icon to view, the cost data) Read the requirements Requirement 1. Compute the cost and efficiency variances for direct materials and direct labor Begin with the cost variances. Select the required formulas, compute the cost variances for direct materials and direct labor, and identify whether each variance is favorable F or unfavorable U Abbreviations used: AC-actual co t A: actual quantity: FOH ted overhead; SC standard cost, SQ-standard quantity Formula Variance Direct materials cost variance| Direct labor cost variance

Explanation / Answer

1. Material Variances & Labour Variances

Material Variances;

(a) Material Price Variance

MPV = (Standard cost - Actual Cost) x Actual quantity

= (0.17 x 0.22) x 208,000 = 104,000 (U)

(b) Material Efficiency Variance

MEV = (Standar Quantity - Actual Quantity) x Standard Cost

= (2 x 105,000 - 208,000) x 0.17 = 340 (F)

(c) Material Cost Variance

MCV = SQ x SC - AQ x AC or MPV - MEV

= (2 x 105,000 x 0.17 - 208,000 x0.22) = 10,060 (U) or 10,4000 (U) - 340 (F) = 10,060 (U)

Labour Variances;

(a) Labour Rate Variance

LRV = (Standard rate - Actual rate) x Actual Hours

= (7 - 7.10) x 1600 = 160 (U)

(b) Labour Efficiency Variance

LEV = (Standard Hours - Actual Hours) x Standard rate

= (0.02 x 105,000 - 1600) x 7 = 3500 (F)

(c) Labour Cost Variance

LCV = (Standard Hours x Standard Rate) - (Actual hours x Actual rate)

= (0.02 x 105,000 x 7) - (1600 x 7.10) = 3340 (F)

2. Variable Overhead Variance and Fixed Overhead Variances

Variable Overhead Variance;

(a) Variable Overhead Rate Variance

= (Standard variable overhead rate variance - Actual Variable overhead rate) x Actual Activity*

* actual activity may material, labour or quantity, in this question activity is labour hrs.

so, = (11 - 8000/1600) x 1600 = 9600 (F)

(b) Variable Overhead Efficiency Variance

= (Standard Activity - Actual Activity) x Standard Variable Overhead Rate

= (0.02 x 105,000 - 1600) 11 = 550 (F)

(c) Variable Overhead Cost Variance

= (Standard Hour x Standard Variable Overhead Rate - Actual Hour x Actual Variable Overhead Rate)

= (0.02 x 105,000 x 11 - 8000) = 15100 (F) or 9600 (F) + 5500 (F) = 15100 (F)

Fixed Overhead Variances

(a) Fixed Overhead Volume Variance = Budgeted Fixed overhead - Absorbed Fixed Overhead

= 32300 - 35700 = 3400 (U)

Absorbed Overhead = 35700 (Standard rate per unit x actual unit)

ie;

Standard Rate per hour = $17

Standard hour per unit = 1900/95000 = 0.02 hrs/ unit

Actual Unit = 105,000

So, Absorbed Overhead = $17 x 0.02 x 105,000 = $35,700

(b) Fixed ovehead Cost variance = Absorbed overhead - actual overhead

= 35700 - 28000 = $ 7700 (U)

3. Trade-off between two direct material variance

It may be decided to purchase cheaper materials for a job in order to obtain a favourable price variance. This may lead to higher materials wastage than expected and therefore adverse usage variances occur.
If the cheaper materials are more difficult to handle, there might be some adverse labour efficiency
variance too. If a decision is made to purchase more expensive materials, which perhaps have a longer service life, the price variance will be adverse but the usage variance might be favourable.

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