The January figures for purchasing, production, and labor are: The company purch

Question

The January figures for purchasing, production, and labor are: The company purchased 229,000 pounds of raw materials in January at a cost of 78c a pound. Production used 229,000 pounds of raw materials to make 115,500 units in January. Direct labor spent 18 minutes on each product at a cost of $7.80 per hour. Overhead costs for January totaled $54,673 variable and $73,800 fixed. Answer the following questions about standard costs. What is the materials price variance? What is the materials quantity variance? What is the total materials variance? What is the labor price variance? What is the labor quantity variance? What is the total labor variance? What is the total overhead variance?

Explanation / Answer

Standard Material cost card per unit :

______________________________________________________________________________________

Standard per unit                                   Standard                                                     Actual

Item    Qty     Rate        Cost p.u    115,500 x 2lb  x $0.80 =184,800                     229,000lb x $ 0.78 = $178,620

Metal   1lb     63 cents   63 cents    Standard quantity =115,500 x 2=231,000lb;    Actual quantity 229,000lb

Plastic 12oz   $1 lb        75 cents

Rubber    4oz    88 cents 22 cents

Total       2 lb                    $1.60     

Note: Unit Materila purchase price = 0.78 per lb; stndard cost per lb = $0.80 and for unit $1.60

Standard Labour cost card per unit

________________________________________________________________________________________

Standard hours per unit                                Standard(115,500)                       Actual

Hours      Rate             Amount                  Hours     Rate    Amont       Hours        Rate      Amount

15 mts     $8 per hour    $2                        28,875    $8     $231,000    34,650       $7.80     $270,270     

ANSWERS:

(1) Material Price variance = Atual quuantity (Standard price - Actual price)

                                     = 229,000 (0.80 - 0.78) = $4,580

(2) Material Quantity variance = Standard price (Standard qauntity - Actual quantity)

                                           = $0.80 (231,000- 229,000) = $1,600 (Favourable)

(3) Total Material Variance = Standard cost for actual output - Acutal cost

                                      = ($115,500 units x 2lb x $0.80) - ($229,000 x 0.78 )

                                      = ( $184,800 - $178,620) = $6,180 (Favourable)

(4) Labour Price Variance = Actual hours (Standard price - Actual price)

                                          = 34,650($8 - $7.8)

                                          = $6,930 (Favourable)

(5) Labor Quantity variance = Standard price (Standard hours - Actual hours)

                                            = $8 ( 28,875 - 34,650)

                                            = $46,200 (Unfavourable)

(6) Total Labor variance = Standard labour cost for actual output - Actual labour cost

                                       = ($115500 x 15/60 x $8) - ( 229000 x 18/60 x $7.80)

                                       = $231,000 - 270,270 = 39,270 (unfavourable)

(7) Total Overhead variance = Total Standard Overhead - Total actual overhead

                                              = (Standard hours x standard rate) - Total Actual overhead)

                                              = (28875 x 4.28) - (54,673 + 73,800)

                                              = ($123,585 - $128,473)

                                              = $4,888 ( Unfavourable)

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