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:

Meters of pipe 
Unit Cost 
Amount 
Actual quantity purchased 
100,000 
$0.78 actual 
$78,000 
actual quantity purchased 
100,000 
$0.80 standard 
$80,000 

 
 
 
Materials purchase price variance 
100,000 
$(0.02) 
$(2,000) fav. 

======= 
======= 
======= 
Actual quantity
used 
87,300 
0.80 standard 
$69,840 
Standard
quantity allowed 
86,400 
0.80 standard 
$69120 

 
 
 
Materials
quantity variance 
900 
0.80 
$720 Unfav 

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Problem 2:
Materials Variance Analysis:
The standard price for material 3291 is $3.65 per liter. During November,
2,000 liters were purchased at $3.60 per liter. The quantity of material 3291
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:
 It is recorded at the time of purchase
(Materials purchase price variance).
 It is recorded at the time of issue
(Materials price usage variance).
Solution:

Liters 
Unit cost 
Amount 
Actual quantity purchased 
2,000 
3.60 actual 
$7,200 
Actual quantity purchased 
2,000 
3.65 standard 
7,300 

 
 
 
Materials
purchase price variance 
2,000 
$
(0.05) 
$(100) fav. 

====== 
====== 
====== 
Actual quantity
used 
1775 
3.60 actual 
$6390.00 
Actual quantity
used 
1775 
3.65 standard 
$6478.75 

 
 
 
Materials
price usage variance 
1775 
$(0.05) 
(88.75) 

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====== 
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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:
 labor rate variance or
Labor price variance.
 Labor efficiency or usage or quantity
variance.
Solution:

Time 
Rate 
Amount 
Actual hours worked 
1,580 
$6.90 actual 
$10,902 
Actual hours worked 
1.580 
$6.75
standard 
10,665 

 
 
 
Labor rate variance 
1,580 
$0.15 
$237 unfav. 

===== 
===== 
===== 
Actual hours worked 
1,580 
$6.75 standard 
$10,665 
Standard hours
allowed 
1,600 
$6.75 standard 
$10,800 

 
 
 
Labor
efficiency variance 
(20) 
6.75 standard 
$(135) fav. 

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====== 
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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: 
$4,500 /
5,000 hours 
= 
$0.90 
Variable: 
$7,500 /
5,000 hours 
= 
$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 

$11,000 
Budgeted
allowance based on standard hours allowed: 


Fixed expenses budgeted 
$4,500 

Variable expenses (4,500 standard hours allowed ×
$1.50 variable overhead rate) 
$6,750 


 
$11,250 


 
Favorable
controllable variance 

$
(250) fav. 


====== 
Budgeted
allowance based on standard hours allowed 

$11,250 
Overhead charged
to production (4,500 standard hours allowed ×
$2.40 standard rate) 

$10,800 


 
Unfavorable
volume variance 

$450 unfav. 


====== 
Three Variance
Method:



Actual factory
overhead 

$11,000 
Budgeted
allowance based on actual hours worked: 


Fixed expenses budgeted 
$4,500 

Variable expenses (4,400 actual hours worked ×
$1.50 variable overhead rate) 
$6,600 


 
$11,100 


 
Favorable
spending variance 

$
(100) fav. 


====== 
Budgeted
allowance based on actual hours worked 

$11,100 
Actual hours
worked ×
Standard overhead rate (4,400 hours ×
$2.40) 

$10,560 


 
Unfavorable
spending variance 

$540 unfav. 


====== 
Actual hours
worked ×
Standard overhead rate (4,400 hours ×
$2.40) 

$10,560 
Overhead charged
to production (4,500 standard hours allowed ×
$2.40 standard rate) 

$10,800 


 
Favorable
efficiency variance 

$
(240) fav. 


===== 
Four Variance
Method:



Actual factory
overhead 

$11,000 
Budgeted
allowance based on actual hours worked: 


Fixed expense budgeted 
$4,500 

Variable expenses (4,400 actual hours worked ×
$1.50 variable overhead rate) 
$6,600 


 
$11,100 


 
Favorable
spending variance 

$
(100) fav. 


====== 
Budgeted
allowance based on actual hours worked 

$11,100 
Budgeted
allowance based on standard hours allowed 

$11,250 


 
Favorable
variable overhead efficiency variance 

$
(150) fav. 


====== 
Actual hours × fixed
overhead rate (4,400 actual hours × $0.90 fixed overhead rate) 

$3,960 
Standard hours
allowed × fixed overhead rate (4,500 actual hours × $0.90) 

4,050 


 
Favorable
fixed overhead efficiency variance 

$
(90) fav. 


====== 
Normal capacity
hours (5000) ×
Fixed overhead rate ($0.90) 

$4,500 
Actual hours
worked (4,400) ×
Fixed overhead rate ($0.90) 

$3,960 


 
Unfavorable
Idle capacity variance (600 hours ×
$0.90) 

$540 unfav. 


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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. 
$ 6.00 
Direct labor: 1 hour at $4
per hour 
$ 4.00 
Factory overhead: 75% of
direct labor cost 
$ 3.00 

 
Total 
$13.00 

====== 
The following data were obtained from Bovar's
record for may:
Actual
production of Dandy 
4,000 units 
Units sold of
Dandy 
2,500 
Sales 
$50,000 
Purchases
(26,000 pounds) 
27,300 
Materials price
variance (applicable to May purchase) 
$1,300 unfavorable 
Materials
quantity variance 
1,000 unfavorable 
Direct labor
rate variance 
760 unfavorable. 
Direct labor
efficiency variance 
800 favorable 
Factory overhead
total variance 
500 unfavorable 
Required:
 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 
4,000 units 
Standard materials per unit 
6 pounds 

 
Standard quantity of
materials allowed 
24,000 pounds 

======= 
Standard quantity of
materials allowed 
24,000 pounds 
Unfavorable materials
quantity variance ($1,000 variance
/ $1 standard price per pound) 
1,000 pounds 

 
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 per direct labor hour) 
(200) hours 

 
Actual hours worked 
3,800 hours 

======= 
Standard direct labor rate 
$4.00 
Unfavorable direct labor
rate variance ($760 variance /
3,800 hours actually worked) 
0.20 

 
Actual direct labor rate 
$4.20 

====== 
Standard factory overhead
(4,000 units produced ×
$3 standard overhead rate per unit) 
$12,000 
Unfavorable factory overhead
variance 
500 

 
Actual total factory
overhead 
$12,500 

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