III: Standard Cost (22 points) Erie Sports Corporation makes a product with the
ID: 2570353 • Letter: I
Question
III: Standard Cost (22 points) Erie Sports Corporation makes a product with the following standard costs: r r: 5 pounds per unit of product and $3.5 per pound of material Direct labor: 2 hours per unit of product and $12 per hour Variable overhead: $10 per direct labor hour The company reported the following results concerning this product last month: Units of products produced: 6,100 units Direct materials: 30,100 pounds were p Direct labor: 11,120 hours were used, and the total cost was $139,600 Variable overhead: total cost was $107,864 urchased and used, and price was $3.7 per pound a. What was the materials price variance? Ans: $ favorable unfavorable (Circle one) b. What was the materials quantity variance? Ans: $ favorable unfavorable (Circle one) c. What was the variable overhead rate variance? favorable unfavorable (Circle one) Ans: S d. Wha t was the variable overhead efficiency variance? Ans: $ favorable unfavorable (Circle one)Explanation / Answer
Solution:
Part a) - Material Price Variance
Material Price Variance is the variance arises in the material cost due to difference in actual material purchase price from standard material price. Mathematically, it is calculated as below:
Material Price Variance = Actual Quantity (Standard Price – Actual Price)
Note --- Here actual quantity means actual quantity of material PURCHASED. If the question does not provide the information about material purchase, it is taken as equal to material consumed.
Actual quantity of raw material purchased = 30,100 pounds
Actual price per pound = $3.7
Standard Price per pound = $3.5
Material Price Variance = Actual Quantity Purchased 30,100 (Standard Price 3.5 - Actual Price 3.7) = $6,020 Unfavorable
Part –b) Material Quantity/Efficiency/Usage Variance
Material Efficiency (Usage) Variance measures variance in material cost due to usage/consumption of materials. It is calculated as below:
Material Quantity Variance = Standard Price (Standard Quantity for Actual Production – Actual Quantity USED)
Note --- Here actual quantity means actual quantity of material CONSUMED/USED
Actual Quantity Used in production = 30,100 Pounds
Standard Quantity for Actual Production = Actual Production 6,100 Units x 5 pounds per unit needed as per standard = 30,500 Pounds
Material Quantity Variance = Standard Price 3.5 (Standard Quantity for Actual Production 30,500 – Actual Quantity USED 30,100)
= $1,400 Favorable
Part c) Variable Overhead Rate Variance
Variable Overhead Rate Variance = Actual Hours Worked (Std. Rate – Actual Rate)
= (Actual Hour x Std Rate) – (Actual Hour x Actual Rate)
= (11,120*10) - $107,864
= $3,336 Favorable
Part d) Variable Efficiency Variance
Standard Hours for actual production = Actual Production 6,100 Units x 2 Hours needed per Unit as per standard = 12,200 Hours
Variable Efficiency Variance = Standard Rate (Std Hours for actual production – Actual Hours)
= 10 (12,200 – 11,120)
= $10,800 Favorable
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