Kowaleski Corporation makes a product with the following standard costs: Standar
ID: 2489697 • Letter: K
Question
Kowaleski Corporation makes a product with the following standard costs: Standard Quantity or Hours Standard Price or Rate Direct materials 4.8 grams $ 5.00 per gram Direct labor 0.4 hours $ 12.00 per hour Variable overhead 0.4 hours $ 2.00 per hour In June the company produced 5,300 units using 26,690 grams of the direct material and 2,570 direct labor-hours. During the month the company purchased 25,200 grams of the direct material at a price of $4.80 per gram. The actual direct labor rate was $12.60 per hour and the actual variable overhead rate was $1.90 per hour. The materials price variance is computed when materials are purchased. Variable overhead is applied on the basis of direct labor-hours.
Compute the following variances for raw materials, direct labor, and variable overhead, assuming that the price variance for materials is recognized at point of purchase: (Input all amounts as positive values. Do not round intermediate calculations. Leave no cells blank - be certain to enter "0" wherever required. Indicate the effect of each variance by selecting "F" for favorable, "U" for unfavorable, and "None" for no effect (i.e., zero variance.)
Required:Compute the following variances for raw materials, direct labor, and variable overhead, assuming that the price variance for materials is recognized at point of purchase: (Input all amounts as positive values. Do not round intermediate calculations. Leave no cells blank - be certain to enter "0" wherever required. Indicate the effect of each variance by selecting "F" for favorable, "U" for unfavorable, and "None" for no effect (i.e., zero variance.)
Explanation / Answer
Calculated as Per 5,300 Units :
Standard Direct Material = 25,440 gram
Standard Direct Material Rate = $5
Standard Direct Labour = 2,120 Hours
Standrad Direct Labour Rate = $12
Standard Variable Overhead = 2,120 Hours
Standard Variable Overhead Rate = $2
At the time of purchase,
Actual Direct Labour = 2,570 Hours
Actual Direct Labour Cost = $12.60 Hours
Actual Variable Overhead = 2,570 Hours
Actual Variable Overhead Rate = $1.90 Hours
Actual Direct Material = 25,200 grams
Actual Direct Material Rate = $4.80 per gram
Direct Material Variance = Actual Quantity x Actual Price - Actual Quantity x Standard Price
= 25,200 * 4.80 - 25,200 * 5 = 5,040 F
Direct Labor Variance = Actual Quantity x Actual Rate - Actual Quantity x Standard Rate
= 2,570 * 12.60 - 2,570 * 12 = 1,542 U
Variable Overhead Spending Variance = Standard hours x Standard Variable Overhead Rate per hour - Actual hours x Standard Variable Overhead Rate per hour
= 2,120 * 2 - 2,570 * 2 = 900 U
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