1. Compute the direct materials price and quantity variances and explain their s
ID: 2546930 • Letter: 1
Question
1. Compute the direct materials price and quantity variances and explain their significance. 2. Compute the direct labor rate and efficiency variances and explain their significance. 3. Compute the variable manufacturing overhead rate and efficiency variances and explain their significance. Basic Variance Analysis and the Impact of Variances on Unit Costs Excel HOME INSERT PAGE LAYOUT FORMULAS DATA Sign In Calibri . Alignment Number Conditional Format as. Cell FormattingTable Styles B 1- Cells Editing Clipboard Font Al fStandards for one of Patterson, Inc.'s products is shown below, along with actual v 1 Standards for one of Patterson, Inc.'s products is shown below, along with actual cost data for the month: 3 Direct materials: 4 Standard 5 Actual 6 Direct labor: 7 Standard 8 Actual 9 Variable overhead: 10 Standard 11 Actual 12 13 Total cost per unit $2.75 per yard $2.70 per yard 2.4 yards @ $6.60 3 yards @ $8.10 0.6 hours 0.5 hours @ $18.00 per hour $22.00 per hour 10.80 11.00 0.6 hours 0.5 hours @ $7.00 per hour S7.10 per hour 4.20 3.55 $2160 $22.65 15 xcess of actual cost over standard cost per unit $1.05Explanation / Answer
1) Standard cost variance analysis - Direct Materials
Standard Quantity allowed for Actual output = 13,500 units*$2.40 yards = 32,400 yards
Standard Quantity allowed for Actual output at Std price = 32,400 yards*$2.75 = $89,100
Actual Quantity of Input, at Standard Price = (13,500 units*3 yards)*$2.75
= 40,500 yards*$2.75 = $111,375
Actual Quantity of Input, at Actual Price = 40,500 yards*$2.70 = $109,350
Materials quantity variance = Std Qty allowed at Std price - Actual Qty of input, at Std price
= $89,100 - $111,375 = ($22,275) Unfavorable
Materials Price Variance = Actual Qty of input, at Std price - Actual Quantity of Input, at Actual Price
= $111,375 - $109,350 = $2,025 Favorable
2) Standard cost variance analysis - Direct Labor
Standard Hours allowed for Actual output = 13,500 units*$0.60 hrs = 8,100 hours
Standard Hours allowed for Actual output at Std Rate = 8,100 hours*$18.00 = $145,800
Actual Hours of Input, at Standard Rate = (13,500 units*0.5 hrs)*$18.00
= 6,750 hrs*$18.00 = $121,500
Actual Hours of Input, at Actual Rate = 6,750 hrs*$22.00 = $148,500
Labor Efficiency variance = Std hrs allowed at Std rate - Actual hrs of input, at Std rate
= $145,800 - $121,500 = $24,300 Favorable
Labor Rate Variance = Actual hrs of input, at Std rate - Actual hrs of Input, at Actual rate
= $121,500 - $148,500 = ($27,000) Unfavorable
3) Standard cost variance analysis - Variable manufacturing overhead
Standard Hours allowed for Actual output at Std Rate = 8,100 hours*$7.00 = $56,700
Actual Hours of Input, at Standard Rate = 6,750 hrs*$7.00 = $47,250
Actual Hours of Input, at Actual Rate = 6,750 hrs*$7.10 = $47,925
Variable Overhead Efficiency variance = Std hrs allowed at Std rate - Actual hrs of input, at Std rate
= $56,700 - $47,250 = $9,450 Favorable
Variable Overhead Rate Variance = Actual hrs of input, at Std rate - Actual hrs of Input, at Actual rate
= $47,250 - $47,925 = ($675) Unfavorable
4) Calculation of difference of cost for each variance (Amounts in $)
Particulars Materials: Quantity Variance (22,275) U Price Variance 2,025 F (20,250) U Labor: Efficiency Variance 24,300 F Rate Variance (27,000) U (2,700) U Variable Overhead: Efficiency Variance 9,450 F Rate Variance (675) U 8,775 F Total Variance (A) (14,175) U Actual production (B) 13,500 units Excess of actual over standard cost per unit (A/B) 1.05Related Questions
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