Standard Actual Cost per Unit Cost per Unit Direct materials: $ 5.40 Standard: 1.80 feet at $3.00 per foot. Actual: 1.80 feet at $3.30 per foot.. Direct labor: $ 5.94 Standard: 0.90 hours at $18.00 per hour. Actual: 0.92 hours at $17.50 per hour Variable overhead: Standard: 0.90 hours at $5.00 per hour. Actual: 0.92 hours at $4.50 per hour . 16.20 16.10 4.50 4.14 Total cost per unit. $26.10 $26.18 Excess of actual cost over standard cost per unit......... $0.08
Variance Analysis
In layman's terms, variance analysis is an analysis of a difference between planned and actual behavior. Variance analysis is mainly used by the companies to maintain a control over a business. After analyzing differences, companies find the reasons for the variance so that the necessary steps should be taken to correct that variance.
Standard Costing
The standard cost system is the expected cost per unit product manufactured and it helps in estimating the deviations and controlling them as well as fixing the selling price of the product. For example, it helps to plan the cost for the coming year on the various expenses.
Basic
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 $0.08 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 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.
b. Labor rate and efficiency variances.
c. Variable overhead rate and efficiency variances.
2. How much of the $0.08 excess unit cost is traceable to each of the variances computed in (1) above.
3. How much of the $0.08 excess unit cost is traceable to apparent inefficient use of labor time?
4. Do you agree that the excess unit cost is not of concern?
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