Problem 8-20B Basic Variance Analysis; the Impact of Variances on Unit Costs [LO
ID: 2432154 • Letter: P
Question
Problem 8-20B Basic Variance Analysis; the Impact of Variances on Unit Costs [LO8-4, LO8-5, LO8-6] Perry 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 Unit Actual Cost per Unit Direct materials $ 3.24 Standard: 1.80 feet at $1.80 per foot Actual: 1.75 feet at $2.20 per foot $3.85 Direct labor 17.10 Standard: 0.90 hours at $19.00 per hour Actual: 0.95 hours at $18.40 per hour 17.48 Variable overhead 5.76 Standard: 0.90 hours at $6.40 per hour Actual: 0.95 hours at $6.00 per hour 5.70 Total cost per unit $26.10 $27.03 Excess of actual cost over standard cost per unit $0.93 The production superintendent was pleased when she saw this report and commented: "This $0.93 excess cost is well within the 5 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 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 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).) Materials quantity variance Materials price variance 1,080 $ 8,400Explanation / Answer
Solution INFORMATION TABLE (actual production - 12000 units) Standard Actual Material Material Qty Rate Cost Qty Rate Cost 21600 1.8 38880 21000 2.2 46200 Labour Labour Hour Rate Cost Hour Rate Cost 10800 19 205200 11400 18.4 209760 variable OH Variable OH Hours Rate Cost Hours Rate Cost 10800 6.4 69120 11400 6.00 68400 Total Cost 313200 Total Cost 324360 Solution 1a we have, Material Qty variance we have , material price variance (Std qty-Actual Qty)*Std Rate (Std rate-actual rate)*actual qty (21600-21000)*1.8 (1.8-2.2)*21000 1080 favorable -8400 unfavorable Solution 1b we have , Labour efficiency variance we have , Labour ratee variance (std hours-actual hours)*std rate (Std rate-actual rate)*actual hours (10800-114000*19 (19-18.4)*11400 -11400 unfavorable 6840 Favorable Solution 1c we have , variable OH efficiency variance we have , Variable OH ratee variance (std hours-actual hours)*std rate (Std rate-actual rate)*actual hours (10800-11400)*6.4 (6.4-6)*11400 -3840 unfavorable 4560 Favorable Solution 2. Materil Total Units per unit Qty variance 1080 12000 0.09 F Price variance 8400 12000 0.7 U Total 0.61 U Labour Efficiency 11400 12000 0.95 U Rate 6840 12000 0.57 F Total 0.38 U OH Efficiency 3840 12000 0.32 U Rate 4560 12000 0.38 F Total 0.06 F Total Variance 0.93 U Solution 3 Excess of actual over standard 0.93 U Less:labour efficieicny 0.95 U Less: OH efficiency 0.32 U Other efficiency 0.34 F