# 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

Variable = \$6,200

Fixed = \$12,000

Required:

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

### 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

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)

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

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

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

Total = \$19,200

\$21,600 – \$18,200 = \$3,400

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

\$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 0020 1 kg. Standard price per kg. \$10 Product in a month appliances 100 kgs. Actual quantity of materials used 98 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.

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.

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.

### 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

### 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