Standard Costing and Variance Analysis Problems & Solution:

Problem 1:

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 ======= ======= =======

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:

 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) ====== ====== =======

Problem 3:

Labor Variance Analysis:

The processing of a product requires a standard of 0.8 direct labor hours per unit for Operation 4-802 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 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. ====== ====== ======

Problem 4:

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. ======

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:

1. Standard quantity of materials allowed (in pounds).
2. Actual quantity of materials used (in pounds).
3. Standards hours allowed.
4. Actual hours allowed.
5. Actual direct labor rate.