Livingston Corporation recently implemented a standard cost system. The company’
ID: 2470069 • Letter: L
Question
Livingston Corporation recently implemented a standard cost system. The company’s cost accountant has provided the following data to perform a variance analysis for May:
Compute the following variances. Indicate whether each variance is favorable (F) or unfavorable (U):
(a) Materials price variance: $__________
(b) Materials quantity variance: $__________
(c) Labor rate variance: $__________
(d) Labor efficiency variance: $__________
(e) Overhead spending variance: $__________
(f) Overhead volume variance: $__________
Explanation / Answer
a. Material price variance = Actual quantity * actual price - actual quantity * standard price
= 429000 - 10400*48
= 429000 - 499200 = 70200 favourable
b. Materials quantity variance = [ standard quantity - actual quantity ] * standard price
= [ 12000 - 10400] * 48
= 76800
c.labor rate variance = actual quantity * actual rate - actual quantity * standard rate
= 23100 - 4200hours * 7
= 23100 - 29400 = 6300 favourable
d. labor efficiency variance = actual hours * standard rate - standard hours * standard rate
= 4200 * 7 - 6000*7
= 29400 - 42000 = 12600 favourable
e. overhead spending variance = [standard overhead rate - actual overhead rate] * actual units
= [ 3.8 - 4.03 ] * 10400
= 2392 unfavourable
f. overhead volume variance = [ actual activity - normal activity] * fixed overhead application rate
Standard overhead volume variance = [ 10400 - 12000] * 2 = 3200 favourable
Actual overhead volume variance = [ 10400 - 12000 ] * 2.33 = 3728 favourable
overhead volume variance = 6928 favourable.
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