direct labour hours During the yea and two of direst materials purchased eere ua

Question

direct labour hours During the yea and two of direst materials purchased eere uaed during the yess 200.000 kg of sials were puchd (a) If the ws s10.000 unfavourable, What were the standard (d) If the labour (e) If the labour pricarce (D If total budgeted what was the standard materials price per kilogrm tavourable, whas was the standard materials quantity per was $18.168 favourable, what was the actual rate per hour actual direct labour hours worked per direct labour hours? g) What was the standard cost per unit of productt (b) How much overhead was applied to production during the year? a) Using one or more answers above, what were the total costs assigned to work in overhead was $713,800 at normal capacity, what was the p acturing Company uses a standard cost system cost system in accounting for the cost of one of its products. on is 1,750 units per month. The standard direct labour cost is 15 hours per unit at ss pet 1So 2.3) The budgeted hour. The budgeted cost for manufa monthly p accounting ucti g overhead is set as follows: Fixed overhead per month Variable overhead per month Total budgeted overhead 5183,750 78,750 The manufacturing overhead rate is 200% of the direct labor cost. During the month of April, the plant produced 1,650 units and the cost of production was as follows: Direct materials (99,000 litres) Direct labour (23,100 hours) Fixed manufacturing overhead Variable manufacturing overhead s792.000 121,275 195,000 63,525 $1,171,800 Instructions Calculate the following: (a) Labour price and quantity variances (b) Variable overhead spending and quantity variances (c) Fixed overhead spending and volume variances (b) LQV (adapted from CPA Canada)

Explanation / Answer

Solution:

Part a – Labor Rate and Quantity Variance

Labor Rate Variance

Labor Price Variance – It arises due to difference in actual rate paid from standard rate. It is calculated as below:

Labor Price Variance = Actual Time (Standard Rate per hour – Actual Rate per hour)

Here, actual time means time for which wage has been paid.

Labor Rate Variance

Actual Hourly Rate (AHR) ($121,275 / 23,100 hrs)

$5.25

Per Hour

Standard Hourly Rate (SHR)

$5.00

Per Hour

Variance or Difference in Rate

$0.25

Per Hour

x Actual Labor Hours worked

23100

Hours

Labor Rate Variance

$5,775

Unfavorable

Unfavorable Labor Rate Variance because actual hourly rate paid is higher than standard hourly rate.

Labor Quantity Variance

Labor Efficiency Variance – It arises due to variation in the working hours from the set standard.

Labor Quantity / Efficiency Variance

Standard Hours Allowed for actual production:

Actual Production

1650

Units

x Allowed Standard Hours Per Unit

15

hours

Total Standard Hours Allowed for actual production (SHAP)

24750

hours

Actual Labor Hours Worked (AH)

23100

hours

Variance or Difference in Hours (SHAP - AH)

1650

hours

x Standard Hourly Rate (SHR)

$5

per hour

Labor Efficiency Variance

$8,250

Favorable

Labor Efficiency Variance is Favorable because the Actual Hours Worked is lesser than the allowed standard hours.

Part b --- Variable Overhead Spending and Quantity Variance

Variable Overhead Spending/Rate Variance

Actual Hourly Variable Overhead Rate

($63,525 / 23,100 actual hours)

2.75

Per Hour

Standard Hourly Variable Overhead Rate (SV) (Refer Note 1)

3.00

Per Hour

Variance or Difference in Rate

0.25

Per Hour

x Actual Direct Labor Hours Worked

23100

Hours

Variable Overhead Rate Variance

$5,775

Favorable

Favorable because Actual Variable Overhead is less than anticipated

Note 1 – Standard Hourly Variable Overhead Rate = Total Budgeted Variable Overhead Cost / Total Budgeted Direct Labor Hours

= $78,750 / (1750Units*15 hrs per unit)

= 78,750 / 26,250

= $3 per hour

Variable Overhead Efficiency/Quantity Variance

Standard Hours Allowed for actual production:

Actual Production

1,650

Units

x Allowed Standard Hours Per Unit

15

hours

Total Standard Hours Allowed for actual production (SHAP)

24750

hours

Actual Direct Labor Hours (AH)

23100

Hours

Variance or Difference in Hours (SHAP - AH)

1650

hours

x Standard Hourly Variable Overhead Rate (Refer Note 1)

$3.00

per hour

Variable Overhead Efficiency Variance

$4,950

Favorable

Favorable because actual hours worked is less than anticipated

Part c --- Fixed Overhead Spending and Volume Variance

Fixed Overhead Expenditure/Spending Variance

Budgeted Fixed Overheads (BFOH)

$183,750

Actual Fixed Overheads (AFOH)

$195,000

Fixed Overhead Expenditure Variance (AFOH - BFOH)

$11,250

Unfavorable

Fixed Overhead Volume Variance

Absorbed Fixed Overheads (A)

(Actual Hours worked 23,100 x Standard fixed overhead rate per hour $7)

$161,700

Budgeted Fixed Overheads (B)

$183,750

Fixed Overhead Volume Variance (B -A)

$22,050

Unfavorable

Note --- Standard Fixed Overhead Rate per hour = Total Budgeted FOH / Total Budgeted Direct Labor Hour as calculated in part 1

= $183,750 / 26,250 hrs

= $7 per hour

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Labor Rate Variance

Actual Hourly Rate (AHR) ($121,275 / 23,100 hrs)

$5.25

Per Hour

Standard Hourly Rate (SHR)

$5.00

Per Hour

Variance or Difference in Rate

$0.25

Per Hour

x Actual Labor Hours worked

23100

Hours

Labor Rate Variance

$5,775

Unfavorable

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