Variances Analysis Practical Questions and Answers

Variances Analysis Practical Questions No. 1

Standard product cost card of a product is given below:

Materials 2 feet length, 1/4 inch thick@$16$32
Factory overhead labor 4 hours@$6$24
Variable 4 hours@$2$8
Fixed 4 hours@$4$16$24
Total standard production cost$80

Fixed overhead has been based on 36,000 hours a year.


Total fixed overhead estimated at $144,000 per annum.

Actual data for a month has been ascertained as follows:

Actual hours worked = 3,800

Units of product produced = 900

Material used = 1,900 feet in length

Price per feet = $15

Labor wage rate actual = $5.80

Factory overhead actual:

Variable = $6,200

Fixed = $12,000

Required:

Calculate two variances for each of the three elements of cost of production.

Answer

1). Material Cost Variances:

Standard quantity of output @ standard price:

900 units x 2 x $16 = $28,800

Actual quantity used @ standard price:

1,900 x $16 = $30,400

Actual quantity used @ actual price:

1,900 x $15 = $28,500

Total Material Cost Variance:

$28,800 – $28,500 = $300 (favorable)

Analysis

Materials usage variance:

28,800 – 30,400 = $1,600 (unfavorable)

Material price variance:

30,400 – 28,500 = $1,900 (favorable)

2). Labor Cost Variances:

Standard hours of output at standard wage rate:

900 units x 4 hours x $6 = $21,600

Actual hours for the output at standard wage rate:

3,800 hours x $6 = $22,800

Also Check:  Direct Labor Variances

Actual hours at actaul wage rate:

3,800 hours x $5,80 = $22,040

Total labor cost variance:

$21,600 – $22,040 = $440 (unfavorable)

Analysis

labor efficiency variance:

$21,600 – $22,800 = $1,200 (unfavorable)

Labor wage rate variance:

$22,800 – $22,040 = $760 (favorable)

3). Factory Overhead Variances:

Standard hours of output @ standard overhead rate

900 units x 4 hours x $6 = $21,600

Budget for standard hours produced = 900 units x 4 hours = 3,600 hours

Variable overhead:

3,600 hours x $2 = $7,200

($144,000 / 12 months = $12,000

Total = $19,200

Actual Overhead = $18,200

Total Factory Overhead variance:

$21,600 – $18,200 = $3,400

Factory Overhead Volume Variance:

$21,600 – $19,500 = $2,400 (favorable)

Factory overhead controllable variance:

$19,200 – $18,200 = $1,000 (favorable)

Variances Analysis Practical Question No. 2

Following data relates to an industrial organization manufacturing a bousehold appliance.

Standard quantity required of materials item 00201 kg.
Standard price per kg.$10
Product in a month appliances100 kgs.
Actual quantity of materials used98 kgs.
Actual price paid$11/kg

Following calculation for variances have been made:

Material usage variance =2 kgs. @ $11 = $22
Material price variance =100 kgs. x $1 = $100

Do you agree with these calculations? If not provide a correct calculation for the variances.

Answer

The above analysis of variances is not correct. Correct calculations are given below:

Material usage variance:

Difference between standard quantity for the output multiplied by standard price.

Also Check:  Overhead variances

100 units x 1 kg. x $10 = $1,000

(-) 98 kgs. x $10 = $980 or 2 kgs. x $10 = 20 (favorable variance).

Material Price Variance:

Actual quantity used x difference between standard price and actual price

98 kgs. x $1 = $98 (unfavorable)

Total Variance = $78 (unfavorable)

Practical Question No. 3

The following data  pertains to the first week of operation in June 2011:

Materials:

Actual Purchased = 1,500 units @ $3.80 per unit
Actual usage = 1,350 units
Standard usage = 1,020 units @ $4.00 per unit

Direct Labor:

Actual hours = 310 hours @ $12.10 per hour
Standard hours = 340 hours @ $12.00 per hour

Required:

Compare the variance whether favorable or unfavorable.

(1). Material purchase, price variance and quantity variance.

(ii). Labor rate efficiency variance.

Answer

Requirement No. (1)

1). Material Purchase Price Variance

Actual quantity purchased x Actual rate (1,500 units x $3.80) = $5,700
Actual quantity purchased x standard rate ( 1,500 units x $4) = $6,000
Favorable = $300

2) Material Usage Price Variance

Actual quantity used x Actual rate ( 1,350 units x $3.80) = $5,130
Actual quantity used x standard rate (1,350 units x $4) = $5,400
Favorable = $270

3). Material Quantity Variance

Actual quantity used x Standard rate (1,350 units x $4) = $5,400
Standard quantity allowed x standard rate (1,020 units x $4) = $4,080
Unfavorable = $1,320
Also Check:  Standard Costing

Requirement No. (ii)

1. Labor Rate Variance

Actual labor hours worked x Actual rate (310 hours x $12.10) = $3,751
Actual labor hours worked x standard rate (310 labor hours x $12) = $3,720
Unfavorable = $31

 

2. Labor Efficiency Variance

Actual labor hours worked x standard rate (310 hours x $12) = $3,720
Standard hours allowed x Standard rate (340 hours x $12) = $4,080
Favorable = $360

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