Koontz Company manufactures a number of products. The standards relating to one

Question

Koontz Company manufactures a number of products. The standards relating to one of these products are shown below, along with actual cost data for May Standard Cost per Unit Actual Cost per Unit Direct materials $5.40 Standard: 1.80 feet at $3.00 per foot Actual: 1.80 feet at $3.30 per foot $5.94 Direct labor 16.20 Standard: 0.90 hours at $18.00 per hour Actual: 0.92 hours at $17.50 per hour 16.10 Variable overhead: 4.50 Standard: 0.90 hours at $5.00 per hour Actual: 0.92 hours at $4.50 per hour 4.14 $26.18 $0.08 Total cost per unit $26.10 Excess of actual cost over standard cost per unit The production superintendent was pleased when he saw this report and commented: "This $0.08 excess cost is well within the 2 percent limit management has set for acceptable variances. It's obvious tha there's not much to worry about with this product. Actual production for the month was 12,000 units. Variable overhead cost is assigned to products on the basis of direct labor-hours. There were no beginning or ending inventories of materials.

Explanation / Answer

Koontz Company        1 Standard Price Standard Standard    (Rate) Unit Cost Quantity      Direct materials 1.8 ft     $ 3 per ft $ 5.4   Direct labor 0.9 hrs.     $ 18 per hr. 16.2   Variable manufacturing overhead 0.9 hrs.     $ 5 per hr. 4.5    (based on direct labor hours) Total 26.1 Actual Results Actual Units Prodcued Actual Qty used Actual Cost Actual Qty/Hr per unit Actual Rate/ft/Hr Std Qty/Hr For Actual Output Std Cost/Actual output   Direct materials (clay)               12,000             21,600            71,280             3.30              21,600              64,800   Direct labor               12,000             11,040          193,200           17.50              10,800            194,400   Variable manufacturing overhead               12,000             11,040            49,680             4.50              10,800              54,000    (based on direct labor hours)                        -   Direct Materials Price Variance= Actual Qty Used( Actual Rate-Std Rate) =21600*(3.3-3)                  6,480 (U) Direct Material Efficiency Variance =Std Rate ( Actual Qty used-Std qty for actual output)   =3*(21600-21600)                         -   NA Direct Labor Rate Variance= Actual Hrs Used( Actual Rate-Std Rate) =11040*(17.5-18)                  5,520 (F) Direct LAbor Efficiency Variance =Std Rate ( Actual Hrs used-Std Hrs for actual output)   =18*(11040-10800)                  4,320 (U) Variable Overhead Rate Variance= Actual Qty Used( Actual Rate-Std Rate) =11040*(4.5-5)                  5,520 (F) Variable Overhead Efficiency Variance =Std Rate ( Actual Qty used-Std qty for actual output)   =5*(11040-10800)                  1,200 (U)        2 Tracing of $0.08 excess variance per unit Total Variance Per unit variance F   U F   U Material   Price               6,480              0.540 Efficiency                         -   Labor Price                  5,520              0.460 Efficiency               4,320              0.360 Overhead Price                  5,520              0.460 Efficiency               1,200              0.100 Total               11,040             12,000              0.920              1.000        3 Excess variance due to labor inefficiency per unit U   F Labor efficiency               0.360 Overhead efficiency due to labor hrs               0.100 Total variance due to Labor efficiency             0.4600 Total Variance due to other factor              0.5400

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