My Company, Inc. produces table cloths. The company has a standard cost system i
ID: 2494067 • Letter: M
Question
My Company, Inc. produces table cloths. The company has a standard cost system in use for its table cloths. The plant should work 3,000 hours to produce 2,000 type “A” table cloths. The standard costs for type “A” table cloths are:
Total Per table cloth
Direct materials $89,600 $44.80
Direct labor $18,000 9.00
Variable manufacturing overhead
(based on direct labor hours) $ 7,500 3.75
Total $57.55
During the month of April, the plant worked only 2,850 direct labor hours and produced 2,200 type “A” table cloths. The following actual costs were recorded in April:
Total Per table cloth
Direct materials (12,010 yards) $95,480 $43.40
Direct labor $18,525 8.42
Variable manufacturing overhead $ 7,700 3.50
At standard, each table cloth should require 5.6 yards of material. All of the materials purchased during the month were used in production.
Required:
Compute the following for the month of April (ignore rounding errors):
1] The direct materials price and quantity variances,
2] The direct labor rate and efficiency variances, and
3] The variable overhead rate and efficiency variances.
Explanation / Answer
Standard Data
Actual Data
Standard Material Required per unit of output
5.6 Yards
Actual Material Consumed
12010 yards
Standard Material Cost Per unit
44.80
Actual Material Cost
95,480
Standard Material Price
$ 8
($44.80/5.6)
Actual Material Price
7.95
($ 95480/12010)
Standard hour per unit
1.5 Hour
( 3000 hr/2000 unit)
Actual hours used
2850 hour
Standard Labor cost
9
Actual labor cost
$18,525
Standard Rate per hour
$ 6
($ 9/1.5)
Actual rate per hour
6.5
( $18525/2850 )
(‘1) Direct Material Price and Quantity Variance
(‘a) Material Price Variance (MPV)
MPV = (SP – AP) x AQ
Where
SP = Standard Price per unit of material used
AP = = Actual Price per unit of material used
AQ = Actual Quantity of Material Purchased
MPV = (8-7.95) x 12010
MPV = $600 (F)
(‘b) Material Quantity Variance (MQV)
MQV = SP x ( SQ-AQ)
Where
SQ= Standard Quantity allowed for actual output
SQ = 2200 x 5.6
SQ = 12,320 yards
MQV = 8 x (12,320- 12,010)
MQV = $ 2480 (F)
(‘2) Direct Labor rate and Efficiency Variance
(‘a) Labor Rate Variance (LRV)
LRV =( SR –AR ) x AH used
Where
SR = Standard Rate per hour
AR = Actual rate per hour
AH = Actual hours used
LRV = (6-6.5) x 2850
LRV = $1425 (U)
(‘b) Labor Efficiency Variance (LEV)
LEV= (SH – AH ) x SR
Where
SH = Standard Hour allowed
SH = 1.5 hour x 2200
SH = 3300 hours
LEV = (3300-2850) x 6
LEV = $2700 (F)
(‘3) Variable Overhead rate and efficiency variance
(‘a) Variable Overhead Rate Varianve / Spending Variance
= Actual Overhead – (AH x SVR)
Where SVR = Variable Overhead Predetermined rate
SVR = $7500/3000 hours
SVR = $2.5
= 7700- (2850 x 2.5)
= $575 (U)
(‘b) Variable Overhead Efficiency Variance
= SVR ( AH – SH)
Where SH = Standard hour allowed
= 2.5 x ( 2850- 3300)
= $1125 (F)
Standard Data
Actual Data
Standard Material Required per unit of output
5.6 Yards
Actual Material Consumed
12010 yards
Standard Material Cost Per unit
44.80
Actual Material Cost
95,480
Standard Material Price
$ 8
($44.80/5.6)
Actual Material Price
7.95
($ 95480/12010)
Standard hour per unit
1.5 Hour
( 3000 hr/2000 unit)
Actual hours used
2850 hour
Standard Labor cost
9
Actual labor cost
$18,525
Standard Rate per hour
$ 6
($ 9/1.5)
Actual rate per hour
6.5
( $18525/2850 )
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