Stellar Company manufactures a number of products. The standards relating to one
ID: 2477320 • Letter: S
Question
Stellar Company manufactures a number of products. The standards relating to one of these products are shown below, along with the actual cost data for April. Answer the following questions related to the given information. (show work)
1) Compute the following variances for April:
a. Materials price & quantity variances
b. Labor rate & efficiency variances
c. Variable overhead rate & efficiency variances
2) How much of the $0.08 excess unit cost is traceable to each of the variances computed in (1) above?
3) How much of the $0.08 excess unit cost is traceable to apparent inefficient use of labor time?
4) Do you agree that the excess unit cost is not of concern?
Standard Cost Per Unit Actual Cost Per Unit Direct materials: Standard: 1.80 feet at $3.00 per foot. $5.40 Actual: 1.80 feet at $3.30 per foot $5.94 Direct Labor: Standard: 0.90 hours at $18.00 per hour $16.20 Actual: 0.92 hours at $17.50 per hour $16.10 Variable Overhead: Standard: 0.90 hours at $5.00 per hour $4.50 Actual: 0.92 hours at $4.50 per hour $4.14 Total Cost Per unit: $26.10 $26.18 Excess of actual cost over standard cost per unit: $0.08Explanation / Answer
1.
a. Materials price variance = ( Standard price per unit - Actual price per unit) x Actual quantity purchased = ( $ 3 - $ 3.30 ) x 1.80 = $ 0.54 per unit Unfavorable
Materials quantity variance = ( Standard quantity for actual output - Actual quantity used) x Standard price per unit = ( 1.80 ft. - 1.80 ft.) x $ 3 = 0
b. Labor rate variance = ( Standard labor hour rate - Actual labor hour rate ) x Actual hours worked = ( $ 18 - $ 17.5) x 0.92 = $ 0.46 per unit Favorable
Labor efficiency variance = ( Standard hours for actual output - Actual hours worked) x Standard labor hour rate = ( 0.90 - 0.92 ) x $ 18 = $ 0.36 per unit Unfavorable.
Total labor cost variance per unit = $ 0.46 Favorable + $ 0.36 Unfavorable = $ 0.10 Favorable
c. Variable overhead rate variance = ( Standard rate per hour - Actual rate per hour ) x Actual hours worked = ( $ 5 - $ 4.50 ) x 0.92 = $ 0.46 per unit Favorable
Variable overhead efficiency variance = ( Standard hours for actual output - Actual hours worked ) x Standard rate per hour = ( 0.90 - 0.92 ) x $ 5 = $ 0.10 per unit Unfavorable
Total variable overhead variance per unit = $ 0.46 Favorable + $ 0.10 Unfavorable = $ 0.36 Favorable
2. 1005 of the $ 0.08 excess unit cost is traceable to each of the variances computed above.
Total materials variance + Total labor variance + Total variable overhead variance = $ 0.54 U + $ 0.10 F + $ 0.36 F = $ 0.08 per unit Unfavorable
3. Labor efficiency variance + Variable overhead efficiency variance = $ 0.36 U + $ 0.10 U = $ 0.46 U
4. No. Do not agree. The unfavorable labor and variable overhead efficiency variances are a cause for concern.
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