Koontz Company manufactures a number of products. The standards relating to one
ID: 2566825 • Letter: K
Question
Koontz Company manufactures a number of products. The standards relating to one of these products are shown below, along with actual cost data for May Standard Cost per ni Actual Cost per ni Direct materials $5.40 Standard: 1.80 feet at $3.00 per foot Actual: 1.80eet at $3.30 per foot $5.94 Direct labor: 16.20 Standard: 0.90 hours at $18.00 per hour Actual: 0.92 hours at $17.50 per hour 16.10 Variable overhead 4.50 Standard: 0.90 hours at $5.00 per hour Actual: 0.92 hours at $4.50 per hour Total cost per unit S26.10 $26.18 Excess of actual cost over standard cost per unit 0.08 The production superintendent was pleased when he saw this report and commented: "This $0.08 excess cost is well within the 2 percent limit management has set for acceptable variances. It's obvious that theres not much to worry about with this product." Actual production for the month was 12,000 units. Variable overhead cost is assigned to products on the basis of direct labor-hours. There were no beginning or ending inventories of materialsExplanation / Answer
Note 1: Data For Production of 12000 Units Details Quantity Rate Amount $ Direct Material Standard: 1.80 feet at $ 3 per foot 21600 3 64800 Actual: 1.80 feet at $ 3.30 per foot 21600 3.3 71280 Direct Labor Standard: 0.90 hours at $ 18 per Hour 10800 18 194400 Actual: 0.92 hours at $ 17.50 per Hour 11040 17.5 193200 Variable Overhead: Standard: 0.90 hours at $ 5 per Hour 10800 5 54000 Actual: 0.92 hours at $ 4.50 per Hour 11040 4.5 49680 1a) Material Price & Quantity Variances: Material Price Variance: = (Actual Quantity * Actual Price) - (Actual Quantity * Standard price) = (21600*3.3)-(21600*3) = 6480 U Material Quantity Variance: = (Actual Quantity - Standard Quantity)*Standard Price = (21600-21600)*3 = 0 None 1b) Labor Rate & Efficiency Variances: Labor Rate Variance = (Actual hours* Actual Rate) - (Actual Hours* Standard Rate) = (11040*17.5)-(11040*18) = 5520 F Labor Efficiency Variance = (Actual Hours-Standard Hours)*Standard Rate = (11040-10800)*18 = 4320 U 1c) Variable Overhead Rate & Efficiency Variances: Labor Rate Variance = (Actual hours* Actual Rate) - (Actual Hours* Standard Rate) = (11040*4.5)-(11040*5) = 5520 F Labor Efficiency Variance = (Actual Hours-Standard Hours)*Standard Rate = (11040-10800)*5 = 1200 U 2) Tracing of 0.80 Excess Unit Cost to each of variance: Details Variance Production Units Per unit Nature Direct Material: $ Units $ Price Variance 6,480.00 12,000.00 0.54 U Quantity Variance - 12,000.00 - None Direct Labor: Rate Variance 5,520.00 12,000.00 0.46 F Efficiency Variance 4,320.00 12,000.00 0.36 U Variable Overhead: Rate Variance 5,520.00 12,000.00 0.46 F Efficiency Variance 1,200.00 12,000.00 0.10 U Excess of Actual over Standard Cost Per Unit 0.08 3) $ 0.80 Traceable to inefficient use of labor time Details Variance Production Units Per unit Nature $ Units $ Excess of Actual over Standard Cost Per Unit 0.08 U Less: Proportion Attributable to Labor Inefficiency: Labour Efficiency Variance 4,320.00 12,000.00 0.36 U Variable Overhead Efficiency Variance 1,200.00 12,000.00 0.10 U Portion Due to Other Variances 4,560.00 12,000.00 0.38 F
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