Working Backward from Variances On May 1, 20XX, Bovar Company began the manufact

Question

Working Backward from Variances

On May 1, 20XX, Bovar Company began the manufacture of a new mechanical device known as "Dandy." The company installed a standard cost system in accounting for manufacturing costs. The standard costs for a unit of "Dandy" are as follows:

The following data were obtained from Bovar's records for the month of May:

The amount shown above for material price variance is applicable to raw material purchased during May.

Compute each of the following items for Bovar for the month of May. Show computations in good form.

(a) Standard quantity of raw materials allowed (in pounds)

(b) Actual quantity of raw materials used (in pounds)

(c) Standard hours allowed.

(d) Actual hours worked.

(e) Actual direct labor rate.

Raw materials (6lbs. @ $1 per lb.)        $6.00 Direct Labor (1 hour @ $4 per hour) $4.00 Overhead (75% of direct labor costs) $3.00 Total $13.00

Explanation / Answer

a) Standard qty of raw materials allowed actual production * standard pounds per unit 4,000*6 24000 pounds b) Actual qty used materials qty variance = (AQ used- SQ allowed)*Standard price (x - 24000)*1 = 1000 x                       = 25000 pounds c) Standard hours allowed actual output * standard hours per unit 4000*1 4,000 hours d) Actual hours worked direct labor efficeicny variance = (AH - SH)*SR (x - 4000)*4 = 800 4x - 16000 = 800 x                 = (15200/4) 3800 hours e) Actual direct labor rate direct labor rate variance = (actual rate - standard rate)*AH (x - 4)*3800=760 3800x - 15,200 = 760 x                        = (760+15200)/3800 4.2 answer

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