Koontz Company manufactures a number of products. The standards relating to one
ID: 2586504 • 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.
The production superintendent was pleased when he saw this report and commented: “This $0.22 excess cost is well within the 2 percent limit management has set for acceptable variances. It's obvious that there's not much to worry about with this product."
Actual production for the month was 10,000 units. Variable overhead cost is assigned to products on the basis of direct labor-hours. There were no beginning or ending inventories of materials.
Required:
1. Compute the following variances for May:
a. Materials price and quantity variances. (Input all amounts as positive values. Indicate the effect of each variance by selecting "F" for favorable, "U" for unfavorable, and "None" for no effect (i.e, zero variance).)
b. Labor rate and efficiency variances. (Input all amounts as positive values. Indicate the effect of each variance by selecting "F" for favorable, "U" for unfavorable, and "None" for no effect (i.e, zero variance).)
c. Variable overhead rate and efficiency variances. (Input all amounts as positive values. Indicate the effect of each variance by selecting "F" for favorable, "U" for unfavorable, and "None" for no effect (i.e, zero variance).)
2. How much of the $0.22 excess unit cost is traceable to each of the variances computed in (1) above. (Input all amounts as positive values. Indicate the effect of each variance by selecting "F" for favorable, "U" for unfavorable, and "None" for no effect (i.e., zero variance). Round your answers to 2 decimal places.)
3. How much of the $0.22 excess unit cost is traceable to apparent inefficient use of labor time? (Input all values as positive amounts. Indicate the effect of each variance by selecting "F" for favorable, "U" for unfavorable, and "None" for no effect (i.e., zero variance). Do not round intermediate calculations. Round your final answers to 2 decimal places.)
Standard Cost per Unit Actual Cost per Unit Direct materials: Standard: 1.80 feet at $2.60 per foot $ 4.68 Actual: 1.75 feet at $2.80 per foot $ 4.90 Direct labor: Standard: 0.90 hours at $16.00 per hour 14.40 Actual: 0.95 hours at $15.40 per hour 14.63 Variable overhead: Standard: 0.90 hours at $3.00 per hour 2.70 Actual: 0.95 hours at $2.60 per hour 2.47 Total cost per unit $ 21.78 $ 22.00 Excess of actual cost over standard cost per unit $ 0.22
Explanation / Answer
1 a) Material Price Variance (Actual price - Standard price) x Actual quantity Actual Quantity = 10000 Units * 1.75 17500 Material Price variance = (2.8-2.6)*17500 3500 Unfavourable So Material Price variance is 3500 U Material Quantity variance Standard Price x (Actual Quantity – standard Quantity) Standard Quantity 10000 units * 1.8 18000 Material Quantity variance 2.6 *(17500-18000) -1300 Favourable So Material Quantity variance is 1300 F 1 b) Labor efficiency Variance (Actual hours - Standard hours) x Standard rate = Labor efficiency variance Actual hour 10000 * 0.95 9500 Standard Hours 10000*0.90 9000 Labor efficiency Variance (9500-9000)*16 8000 Unfavourable So Labour Efficiency variance is 8000 U Labour rate variance (Actual rate - Standard rate) x Actual hours worked (15.4-16) * 9500 -5700 Favourable So Labour Rate variance is 5700 F 1c) Variable overhead rate variance Actual hours worked x (Actual overhead rate - standard overhead rate) 9500*(2.6-3) -3800 Favourable So Variable overhead Rate variance is 3800 F Variable overhead efficiency variance Standard overhead rate x (Actual hours - Standard hours) 3*(9500-9000) 1500 Unfavourable So Variable overhead Efficiency variance is 1500 U 2 Material price Variance 3500 U Material Quantity variance 1300 F Material variance 2200 U Labour Rate variance 5700 F Labour efficiency variance 8000 U Labour variance 2300 U Variable overhead rate variance 3800 F Variable overhead efficiency variance 1500 U Variable overhead variance 2300 F Total Variance 2200 U Total variance per unit 2200/10000 0.22 3 The portion of unit cost which is traceable as inefficient use of labor time is labour efficiency variance which is 8000 U
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