Livingston Corporation recently implemented a standard cost system. The companys
ID: 2505327 • Letter: L
Question
Livingston Corporation recently implemented a standard cost system. The companys 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) Materials price variance: $39,000(F)
MPV = Actual Quantity(AQ) x [Actual Price (AP)- Standard Price(SP)]
= 39,000 pounds x [($429,000/39,000) - $12.00]
= 39,000 pounds x [$11 - $12] = -$39,000
(b) Materials quantity variance: $31,200(F)
MQV = Standard Price(SP) x [Actual Quantity(AQ) - Standard Quantity(SQ)]
= $12 x [39,000 pounds - (10,400 x 4) ]
= $12 x [39,000 - 41,600] = -$31,200
(c) Labor rate variance: $6,300(F)
LRV = Actual Hours Worked x (Actual Rate - Standard Rate)
= 4,200 hours x ($23,100/4,200 -$7.00)
= 4,200 x ($5.50 - $7.00) = -$6,300
(d) Labor efficiency variance: $7,000(F)
LEV = Standard Rate x [Actual Hours Worked - Standard Hours Allowed]
= $7.00 x [4,200 hours -(10,400 units x 0.5 hours]
= $7.00 x -1,000 hours = -$7,000
(e) Overhead spending variance: $770(F)
= [Actual overhead - (Budgeted Fixed overhead + (Actual quantity x Variable overhead rate))
= [($17,750 + $24,200) - ($24,000 + (10,400 x $1.80))
= [$41,950 - ($24,000 + $18,720)] = -$770
(f) Overhead volume variance: $3,200(U)
= $24,000 +(10,400 x $1.80) - (10,400 x $3.80)
= $42,720 - $39,520 = $3,200(U)
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