12 Question 4 Peak Company uses a standard cost system to control its production

Question

12 Question 4 Peak Company uses a standard cost system to control its production costs. For 2009 the company reported the following operating data: Units produced (actual) 22,000 Master produetion budget Direct materials Direct labour Overhead $ 60,000 S 160,000 S 180,000 Standard cost per unit Direct materials Direct labour Variable overhead S1.60 x 5 kg per unit of output $16 per hour x 0.5 hours per unit of output S12 per direct labour-hour Actual costs Direct materials purchased and used Direct labour Overhead $183,600 (102,000 kg,) $160,000 (10,700 hours) $204,000 (32% is fixed) Variable overhead is applied on the basis of direct labour-hours Required Calculate the following variances: 4 Direct materials price and quantity variances 4 b Direct labour rate and efficiency variances 4 c. Variable overhead spending and efficiency variances

Explanation / Answer

Req 4A Std material qty rquired per unit of output 5 kg Std price per kg   $1.60 per kg Actual output   22,000 units Std qty required for actual output (22,000 *5) = 110,000 kgs Actual material consumed 102,000 kgs Actual Material cost    $ 183,600 Actual price per kg (183600/102000) = $ 1.80 per kg Material Price variance = Actual qty consumed (Std price per kg - Actual price per kg) 102000 ( 1.60 - 1.80)= $ 20,400 Unfavorable Material Qty variance= Std price (Std qty required for actual ouput - Actual Qty consumed) 1.60 (110000 - 102000 ) = $ 12,800 favorable Req 4B: STd labour hours req per unit of output = 0.50 hr per unit Std rate per hour    $ 16 per hour Std hours required for actual output (22000*0.50 ) = 11,000 hours Actual hours used = 10,700 hours Actual labour cost = $ 160,000 Actual labour rate per hour (160,000 /10700) = $ 14.953 per hour Labour rate variance= Actual hours used (Std rate per hour - Acvtual labour rate per hour) 10700 ( 16- 14.953) = $ 11,200 unfavorable Labour efficiency variance = Std rate per hour (Std hours allowed- Actual hours used) 16 ( 11000 - 10700 ) = $ 4800 favorable Req 4C: STd labour hours req per unit of output = 0.50 hr per unit Std variable overhead rate per hour    $ 12 per labour hour Std hours required for actual output (22000*0.50 ) = 11,000 hours Actual hours used = 10,700 hours Actual variable overhead cost (204,000 *68%) = $138,720 Actual labour rate per hour (138,720/10700) = $ 12.964 per labour hour 12.964486 Variable overhead rate variance= Actual hours used (Std overhead rate per hour - Acvtualoverhead rate per hour) 10700 ( 12-12.964) = $ 10,320 unfavorable Variable overhead efficiency variance = Std overhead rate per hour (Std labour hours allowed- Actual labour hours used) 12 ( 11000 - 10700 ) = $ 3600 favorable

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