10-9 Comprehensive Variance Analysis LO10-1, LO10-2. LO10-3 PBEs Inc., manufactu
ID: 2568341 • Letter: 1
Question
10-9 Comprehensive Variance Analysis LO10-1, LO10-2. LO10-3 PBEs Inc., manufactures auto accessories. One of the company's products is a set of seat that can be adjusted to fit nearly any small car. The company uses a standard cost system ucts. According to the standards that have been set for the seat covers, the factory covers all of its prod bouldwork 2.850 hours each month to produce 1,900 sets of covers. The standard cost asociated standard costs associated with this level of production are: Per Set Total of Covers Direct materials $42.560 $22.40 $51,300 27.00 Variable manufacturing overhead $53.00 During August, the factory worked only 2.800 direct labor-hours and produced 2,000 scts of cov- es. The following actual costs were recorded during the month: Per Set Total of Covers 000 yo .$49.000 24.50 7,0003.50 $50.80 Variable manufacturing overhead … during the a cach set of covers should require 5.6 yards of material. All of the materials Required At month were used in production. t oupute the following variances for August: 1 The materials price and quantity variances. labor rate and efficiency variances. variable overhead rate and efficiency variances 010-1, L010-2
Explanation / Answer
1 Direct Material price variance = Actual quantity of material x ( Standard Price - Actual Price) = 12,000 yards x ($ 22.40 - $ 22.80) = 4,800 unfavourable Direct Material quantity variance = (Standard Quantity - Actual Quantity) x standard price = (2,000 units x 5.6 yards - 12,000 yards) x $ 22.40 = 17,920 Unfavourable Total Direct Material variance = 4,800 + 17,920 = 22,720 Unfavourable 2 Labor rate variance = ( Standard rate - Actual rate ) x Actual hours Standard rate per hour = $ 51,300 / 2,850 hours = $ 18 per hour Actual rate per hour = $ 49,000 / 2,800 hours = $ 17.50 per hour = ($ 18 - $ 17.50) x 2,800 hours = 1,400 favourable Labor efficiency variance =( Standard hours - Actual hours ) x Standard rate Standard hours for actual production = (2,850 /1,900)x 2000 units = 3,000 hours = (3,000 - 2,800) x $ 18 = 3,600 favourable Total labor variance = 1,400 + 3,600 = 5,000 favourable 3 variable overhead rate variance = ( Standard rate - Actual rate ) x Actual hours Standard rate per hour = $ 6,840 / 2,850 hours = $ 2.40 per hour Actual rate per hour = $7,000 / 2,800 hours = $ 2.50 per hour = ($ 2.40 - $ 2.50) x 2,800 hours = 280 unfavourable Variable overhead efficiency variance =( Standard hours - Actual hours ) x Standard rate = (3,000 - 2,800) x $ 2.40 = 480 favourable Total labor variance = 480 - 280 = 200 favourable
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