Standard Costing and Variance Analysis Problems

Standard Costing and Variance Analysis Problems & Solution: Problem 1: Materials Variance Analysis: The Schlosser Lawn Furniture Company uses 12 meters of aluminum pipe at $0.80 per meter as standard for the production of its Type A lawn chair. During one month's operations, 100,000 meters of the pipe were purchased at $0.78 a meter, and 7,200 chairs were produced using 87,300 meters of pipe. The materials price variance is recognized when materials are purchased. Required: Materials price and quantity variances. Solution:

Actual quantity purchased

Meters of pipe 100,000

actual quantity purchased

100,000

Materials purchase price variance Actual quantity used Standard quantity allowed Materials quantity variance

----------100,000 ======= 87,300 86,400 ------------900 =======

Unit Cost

Amount

$0.78 actual $78,000 $0.80 $80,000 standard --------------------$(0.02) $(2,000) fav. ======= ======= 0.80 standard $69,840 0.80 standard $69120 ------------------------0.80 $720 Unfav ======= =======

Problem 2: Materials Variance Analysis: The standard price for material 3-291 is $3.65 per liter. During November, 2,000 liters were purchased at $3.60 per liter. The quantity of material 3-291 issued during the month was 1775 liters and the quantity allowed for November production was 1,825 liters. Calculate materials price variance, assuming that: Required: Materials price variance, assuming that: 1. It is recorded at the time of purchase (Materials purchase price variance). 2. It is recorded at the time of issue (Materials price usage variance).

Solution: Actual quantity purchased Actual quantity purchased

Liters 2,000 2,000 ---------

Unit cost 3.60 actual 3.65 standard -------------

Amount $7,200 7,300 ---------

Materials purchase price variance Actual quantity used Actual quantity used Materials price usage variance

2,000 ====== 1775 1775 -------1775 ======

$ (0.05) $(100) fav. ====== ====== 3.60 actual $6390.00 3.65 standard $6478.75 --------------------$(0.05) (88.75) ====== =======

Problem 3: Labor Variance Analysis: The processing of a product requires a standard of 0.8 direct labor hours per unit for Operation 4802 at a standard wage rate of $6.75 per hour. The 2,000 units actually required 1,580 direct labor hours at a cost of $6.90 per hour. Required: Calculate: 1. labor rate variance or Labor price variance. 2. Labor efficiency or usage or quantity variance. Solution: Time 1,580 1.580 -------1,580 ===== 1,580 1,600 ---------(20) ======

Actual hours worked Actual hours worked Labor rate variance Actual hours worked Standard hours allowed Labor efficiency variance

Rate Amount $6.90 actual $10,902 $6.75 standard 10,665 --------------$0.15 $237 unfav. ===== ===== $6.75 standard $10,665 $6.75 standard $10,800 ---------------------6.75 standard $(135) fav. ====== ======

Problem 4: Factory Overhead Variance Analysis: The Osage Company uses a standard cost system. The factory overhead standard rate per direct labor hour is: Fixed: Variable:

$4,500 / 5,000 hours $7,500 / 5,000 hours

= =

$0.90 $1.50 -------$2.40

For October, actual factory overhead was $11,000 actual labor hours worked were 4,400 and the standard hours allowed for actual production were 4,500.

Required: Factory overhead variances using two, three and four variance methods. Solution: Two Variance Method: Actual factory overhead Budgeted allowance based on standard hours allowed: Fixed expenses budgeted Variable expenses (4,500 standard hours allowed × $1.50 variable overhead rate)

$11,000 $4,500 $6,750 -----------

Favorable controllable variance Budgeted allowance based on standard hours allowed Overhead charged to production (4,500 standard hours allowed × $2.40 standard rate)

$11,250 ----------$ (250) fav. ====== $11,250 $10,800 -----------$450 unfav. ======

Unfavorable volume variance Three Variance Method: Actual factory overhead Budgeted allowance based on actual hours worked: Fixed expenses budgeted Variable expenses (4,400 actual hours worked × $1.50 variable overhead rate)

$11,000 $4,500 $6,600 -----------

Favorable spending variance Budgeted allowance based on actual hours worked Actual hours worked × Standard overhead rate (4,400 hours × $2.40) Unfavorable spending variance Actual hours worked × Standard overhead rate (4,400 hours × $2.40) Overhead charged to production (4,500 standard hours allowed × $2.40 standard rate)

$11,100 ----------$ (100) fav. ====== $11,100 $10,560 -----------$540 unfav. ====== $10,560 $10,800 ----------$ (240) fav. =====

Favorable efficiency variance Four Variance Method: Actual factory overhead Budgeted allowance based on actual hours worked: Fixed expense budgeted

$11,000 $4,500

Variable expenses (4,400 actual hours worked × $1.50 variable overhead rate)

$6,600 -----------

Favorable spending variance Budgeted allowance based on actual hours worked Budgeted allowance based on standard hours allowed Favorable variable overhead efficiency variance Actual hours × fixed overhead rate (4,400 actual hours × $0.90 fixed overhead rate) Standard hours allowed × fixed overhead rate (4,500 actual hours × $0.90) Favorable fixed overhead efficiency variance Normal capacity hours (5000) × Fixed overhead rate ($0.90) Actual hours worked (4,400) × Fixed overhead rate ($0.90) Unfavorable Idle capacity variance (600 hours × $0.90)

$11,100 ----------$ (100) fav. ====== $11,100 $11,250 ----------$ (150) fav. ====== $3,960 4,050 ----------$ (90) fav. ====== $4,500 $3,960 -----------$540 unfav. ======

Problem 5: Variance Analysis: On May 1, Bovar Company began the manufacture of a new mechanical device known a "Dandy." The company installed a standard cost system in accounting for manufacturing costs. The standard costs for a unit of Dandy are: Materials: 6 lbs. at $1 per lb. Direct labor: 1 hour at $4 per hour Factory overhead: 75% of direct labor cost Total

$ 6.00 $ 4.00 $ 3.00 ----------$13.00 ======

The following data were obtained from Bovar's record for may: Actual production of Dandy Units sold of Dandy Sales Purchases (26,000 pounds) Materials price variance (applicable to May purchase) Materials quantity variance Direct labor rate variance Direct labor efficiency variance

4,000 units 2,500 $50,000 27,300 $1,300 unfavorable 1,000 unfavorable 760 unfavorable. 800 favorable

Factory overhead total variance

500 unfavorable

Required: 1. 2. 3. 4. 5. 6.

Standard quantity of materials allowed (in pounds). Actual quantity of materials used (in pounds). Standards hours allowed. Actual hours allowed. Actual direct labor rate. Actual total factory overhead.

Solution: Actual production Standard materials per unit Standard quantity of materials allowed

4,000 units 6 pounds -----------24,000 pounds ======= 24,000 pounds

Standard quantity of materials allowed Unfavorable materials quantity variance ($1,000 variance / $1 standard price 1,000 pounds per pound) ------------Actual quantity of materials used 25,000 pounds ======== Actual production 4,000 units Standard hours per unit 1 hour -----------Standard hours allowed 4,000 hours ======== Standard hours allowed 4,000 hours Favorable direct labor efficiency variance ($800 variance / $4 standard rate (200) hours per direct labor hour) ------------Actual hours worked 3,800 hours ======= Standard direct labor rate $4.00 Unfavorable direct labor rate variance ($760 variance / 3,800 hours actually 0.20 worked) -----------Actual direct labor rate $4.20 ====== Standard factory overhead (4,000 units produced × $3 standard overhead rate $12,000 per unit) Unfavorable factory overhead variance 500 ------------Actual total factory overhead $12,500 =======