Standard Job Order Costing - Variance Analysis Special order lamps are manufactu

Question

Standard Job Order Costing -

   Variance Analysis

Special order lamps are manufactured in division S. Because of the precise nature of the process a

standard cost system has been developed. The following standards are used for the special orders:

Standards

Lamp Kits

$16.000000

per lamp

Direct Labor

     2.400000

per lamp (4 lamps/hr.)

Variable Overhead

     0.250000

per lamp (4 lamps/hr.)

**

Fixed Overhead

   10.000000

per lamp

   Total

$28.650000

** Fixed overhead is based on expected production of 4,012 customized lamps each month.

To keep records of the actual cost of a job, a Job Order Cost System has been developed. Entries

are made to the Job Order System at actual cost (overhead is applied based on actual labor hours)

while entries are made to the accounting system at standard. Variance analysis is used to analyze the

differences.

Job Order Costing Section

On January 1, 20x2, Division S began Job 1101 for the Client, THE BIG CHILDREN STORE. The

job called for 4,000 customized lamps. The following set of transactions occurred from

January 5 until the job was completed:

5-Jan

Purchased 4,100 Lamp Kits @ $16.70 per kit.

9-Jan

4,100 sets of Lamp Kits were requisitioned.

17-Jan

Payroll of 610 Direct Labor Hours @ $9.75 per hour.

30-Jan

Payroll of 660 Direct Labor Hours @ $10.00 per hour.

30-Jan

3,988 lamps were completed and shipped. All materials requisitioned were

used or scrapped.

Month End Overhead Information

Actual Variable Overhead

$   1,447.80

Actual Fixed Overhead

$ 40,623.45

How many Lamps were completed?

Note: Show favorable variances as negative numbers

What was the total material price variance for the Lamp Kits purchased?

What was the material usage variance for Lamp Kits?

What was the direct labor efficiency variance ?

What was the direct labor rate variance?

Standard Job Order Costing -

   Variance Analysis

Special order lamps are manufactured in division S. Because of the precise nature of the process a

standard cost system has been developed. The following standards are used for the special orders:

Standards

Lamp Kits

$16.000000

per lamp

Direct Labor

     2.400000

per lamp (4 lamps/hr.)

Variable Overhead

     0.250000

per lamp (4 lamps/hr.)

**

Fixed Overhead

   10.000000

per lamp

   Total

$28.650000

** Fixed overhead is based on expected production of 4,012 customized lamps each month.

To keep records of the actual cost of a job, a Job Order Cost System has been developed. Entries

are made to the Job Order System at actual cost (overhead is applied based on actual labor hours)

while entries are made to the accounting system at standard. Variance analysis is used to analyze the

differences.

Job Order Costing Section

On January 1, 20x2, Division S began Job 1101 for the Client, THE BIG CHILDREN STORE. The

job called for 4,000 customized lamps. The following set of transactions occurred from

January 5 until the job was completed:

5-Jan

Purchased 4,100 Lamp Kits @ $16.70 per kit.

9-Jan

4,100 sets of Lamp Kits were requisitioned.

17-Jan

Payroll of 610 Direct Labor Hours @ $9.75 per hour.

30-Jan

Payroll of 660 Direct Labor Hours @ $10.00 per hour.

30-Jan

3,988 lamps were completed and shipped. All materials requisitioned were

used or scrapped.

Explanation / Answer

1. How many Lamps were completed?

As given in the information above a total of 3988 lamps were completed in the month.

2. What was the total material price variance for the Lamp Kits purchased?

Material Price Variance = Actual Material used ( Standard Price - Actual Price)

= 4100 ($16 - $16.70)

= - $2,870 (Unfavourable)

3.  What was the material usage variance for Lamp Kits?

Material Usage Variance = Standard Price ( Standard Material to be used for actual lamps completed - Actual Material Used)

= $16 ( 3988 - 4100 )

= - $1,792 ( Unfavourable )

4. What was the direct labor efficiency variance ?

Standard Rate = $ 2.4 * 4 = $9.6 per hour

Standard Hours Required = 3988 / 4 = 997 Hours

Actual Hours = 660 + 610 = 1270 Hours

Direct Labor Efficiency Variance = Standard Rate ( Standard hours required - Actual Hours)

= $9.6 (997 - 1270)

= - $ 2,621 Unfavourable)

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