Problem 8-24A Comprehensive Variance Analysis [LO4, LO5, LO6] Helix Company prod
ID: 2593251 • Letter: P
Question
Problem 8-24A Comprehensive Variance Analysis [LO4, LO5, LO6]
Helix Company produces several products in its factory, including a karate robe. The company uses a standard cost system to assit in the control of costs. According to the standards that have been set for the robes, the factory should work 780 direct labor-hours each month and produce 1,950 robes. The standard costs associated with this level of production are as follows:
During April, the factory worked only 760 direct labor-hours and produced 2,000 robes. The following actual costs were recorded during the month:
At standard, each robe should require 2.8 yards of material. All of the materials purchased during the month were used in production.
Required
Computer the following variances for April:
1. The materials quantity and price variances
2. The labor efficiency and rate variances
3. The variable manufacturing overhead efficiency and rate variances
Total Per Unit of Product Direct Materials.... $35,490 $18.20 Direct Labor.... $7,020 3.60 Variable Manufacturing overhead (based on direct labor-hours).... $2,340 1.20 $23.00Explanation / Answer
1. Material quantity variance = (Actual usage in units - standard usage in units)* standard cost per unit
So, actual usage = 6,000 yards and standard usage = 2.8 yards * 2000 robes = 5,600 yards.
Standard cost = $18.20/ 2.8 yards = $6.50
Usage variance = (6,000 - 5,600) * standard cost $6.50 = $2,600 unfavourable
Actual price = $18/ (6000 yards/2000 robes) = $6.00
Material price variance = Actual quantity ( actual price - standard price) = 6,000 yards ( $6.00- $6.50) = - $3,000 favourable
2. Labour efficiency variance = ( Actual hours - standard hours) standard rate
Actual hours = 760, standard hours = 780 /1950 * 2000 = 800 and standard rate = $7020/ 780 hours = $ 9.00
Efficiency variance =( 760 - 800)* $9 = - $360 favourable
Labour rate variance = (Actual rate - Standard rate) x Actual hours worked
Actual rate = $7,600 / 760 hours = $10
Rate variance = (10 - 9) * 760 = $760 unfavourable
3. The variable manufacturing overhead efficiency = ( Actual Hours - Standard Hours) standard rate
Actual hours =760, standard hours = 780 /1950 * 2000 = 800 and standard rate = $2340/ 780 hours = $ 3.00
Efficiency variance =( 760 - 800)* $3 = - $120 favourable
Overhead rate variance = (Actual rate - Standard rate) x Actual hours worked
Actual rate = $3,800 / 760 hours = $5
Rate variance = ($5 - $3) * 760 = $1520 unfavourable